Managerial Accounting Exam 1 REVIEW

value chain

R&D → Design → Production → Marketing → Distribution → Customer Service

(Production = factory; everything else = period costs)

What is a cost object?

Anything you want to measure cost for (product, customer, job, department, project)

What are direct and indirect costs?

Direct: can be traced to the cost object (DM, DL). “this cost belongs to THAT thing.”

Indirect: cannot be traced; part of MOH (factory rent, factory electricity). you know it’s needed, but you can’t say exactly how much went to each product

What is a variable cost?

Total variable cost changes with volume

Variable cost per unit stays the SAME

Formula: y = v × x.

“Total cost = cost per unit × number of units.”

Materials, packaging, labor paid per unit, etc

What is a fixed cost?

Total fixed cost stays the SAME

Fixed cost per unit gets SMALLER as volume increases

Formula: y = f.

“Total cost is constant.”

Rent, salaries, insurance, etc.

What is a mixed cost?

Cost with both variable and fixed components. Formula: y = v × x + f.

How do you compute total variable and fixed costs at different activity levels?

Variable cost = v × x

Fixed cost = f

Total cost = VC + FC

How do you compute variable and fixed cost per unit?

Variable cost per unit = v

Fixed cost per unit = f ÷ x

How do you compute average profit per unit?

Profit per unit = Price − variable cost per unit − fixed cost per unit

What are product costs?

DM + DL + MOH

(Inside the factory → go into inventory → COGS)

What are period costs?

Costs outside the factory (marketing, admin, distribution, customer service, R&D, design). Expensed immediately.

How do you compute the predetermined MOH rate?

Rate = Estimated MOH ÷ Estimated Base

(Base = DL hours, machine hours, etc.)

How do you compute applied MOH?

Applied MOH = Rate × Actual Base

How do you compute total job cost?

Job Cost = DM + DL + Applied MOH

How do you identify fixed vs variable costs?

Fixed: does not change with activity.

Variable: changes with activity.

Mixed: has both.

What is contribution margin?

Sales − Variable Costs

Money left to cover fixed costs and generate profit.

How is contribution margin calculated?

CM = Sales − Variable Costs
Sales = Price × Units
Variable Costs = v × x

How do you compute operating income under variable costing?

Operating Income = Contribution Margin − Fixed Costs

What is the variable costing income statement format?

Sales

− Variable Costs

= Contribution Margin

− Fixed Costs

= Operating Income

What is the absorption costing income statement format?

Sales

− COGS (includes fixed MOH)

= Gross Margin

− Operating Expenses

= Operating Income

Why do variable and absorption costing give different operating incomes?

Absorption costing includes fixed MOH in inventory first.

Variable costing expenses fixed MOH immediately.

Difference only happens when production ≠ sales.

What is the “proof of difference” in operating income?

Compare operating income under both methods and explain the difference caused by fixed MOH being treated differently.