Looks like no one added any tags here yet for you.
What is Managerial Accounting?
Process of identifying, measuring, analyzing, interpreting, and communicating information in pursuit of an organizations goals
What is a cost?
Any Sacrifice made to achieve a goal
What is an expense?
the cost incurred when a resource is used up for the purpose of generating revenue
Product Cost
The total expenses incurred to create a product, including direct materials, labor, and overhead costs
Period Cost
Expenses that are not directly tied to the production of goods or services, such as rent and administrative salaries. They are incurred over a specific time period and are not included in the cost of goods sold. Basically, all costs that are not product costs
Examples: R&D, Admin, Selling, Salaries of Sales/Corporate, Commissions,
Gross Profit (Gross Margin)
the amount of revenue left after deducting just the costs that have been classified as cost of sales or COGS
Operating Income (Operating Profit)
Profit remaining after deducting both COGS and period costs
Direct Materials
material that is consumed in the manufacturing process, is physically incorporated in the finished product, and can be traced to products relatively easily
Direct Labor
salaries, wages, and fringe benefits for people who work directly on the manufactured products
Fringe Benefits
health insurance, pension, SS, other non salary benefits
Manufacturing Overhead
Costs not directly tied to production of a specific product, like rent and utilities for the factory. Considered indirect costs in manufacturing
Examples: Indirect Material, Indirect Labor, Other Manufacturing or Production Costs, Overtime, Idletime, depreciation, taxes, insurance, utiltiies, rent,
Prime Costs
direct materials + direct labor
Conversion Costs
Costs incurred to convert raw materials into finished goods, including direct labor and overhead costs. Excludes direct materials.
Three Types of Inventory
Raw/Beginning Materials
WIP
Finished Goods
The Big Ass Inventory Account Equation/Cash Flows….Is Split into 3 Sections
Materials, WIP, Finished Goods
Equation for Materials
Beginning Materials + Materials Purchased = Materials Available - Ending Materials = Materials Used
Equation for WIP
Beginning WIP + Materials Used + Direct Labor + Manufacturing Overhead = WIP Available - Ending WIP = COG Manufactured
Equation for Finished Goods
Beginning FG + COG Manufactured = Goods Available for Sale - Ending FG = COGS
Net Income Equation
Revenue - COGS = Gross Profit - OPEX = Pre Tax Income - Tax = Net Income
Variable Costs
Costs that change based on level of activity. They fluctuate as the quantity of output changes
Total Variable Costs
Total Variable Costs change in Direct Proportion to Changes in Levels of Activity
Unit Variable Costs
Remain the Same as Activity Increases
Fixed Costs
Costs that remain unchanged based on the level of activity
Total Fixed Costs
Remain the same as level of output varies
Unit Fixed Costs
Decreases with output getting higher
Opportunity Costs
benefit that is sacrificed when choosing one alternative over another
Sunk Costs
costs that have already been incurred, nothing can be done about them, they are not important to any decision
Differential Costs
The difference in cost between two alternative courses of action. It helps in decision-making by comparing the costs of different options.
Marginal Costs
The additional cost incurred when producing one more unit of a good or service.
Average Costs
Total Costs/Total Units
Methods for estimating fixed and variable costs
Account Analysis
Visual Fit
High-Low Method
Least-Squares + Multiple Regression
Account Analysis
Closely examining ledger, an analyst will estimate cost amounts
BEST WHEN HISTORICAL PATTERNS MAY NOT CONTINUE
Visual Fit Method
Plotting of a Graph
Helpful for semi-variable costs
BEST FOR QUICK AND SIMPLE ESTIMATES
High-Low Method
Semi Variable Approximation by using a high and low point
Y2-Y1/X2-X1 = Variable Cost
BEST FOR QUICK AND SIMPLE ESTIMATES
Regression
B + Ax = Y
CALLED FOR WHEN PATTERNS ARE COMPLEX AND WE EXPECT HISTORICAL RELATIONS TO CONTINUE
Cost-Volume-Profit (CVP)
CVP analysis examines how changes in sales volume, costs, and prices affect a company's profit. It helps in making decisions to maximize profitability.
Break-even Point
The level of sales at which total revenue equals total costs, resulting in neither profit nor loss. It helps determine the minimum sales needed to cover all expenses.
Total Contribution Margin
Total Sales Revenue - Total Variable Expenses
The amount of revenue available to contribute to covering fixed expenses after all variable expenses have been covered
Data we use for our decisions needs to be
Relevant, Timely, and Accurate
Relevant Data
Must Affect the Future and Differ Among Alternatives
Sometimes its more useful to look at data in terms of variable costs and fixed costs
Equation for CVP
Sales - Variable Costs = Contribution Margin - Fixed Expenses = Income - Tax = Net Income
Breakeven Point Equation (In UNITS)
Fixed Expenses/CM per Unit
Breakeven Point Equation (In DOLLARS)
Fixed Expense/CMR
Contribution Margin Ratio Equation
CM per Unit/Selling Price per Unit
Desired Sales Equation (In UNITS)
FE + Income/CM per Unit
Desired Sales Equation (In DOLLARS)
FE + Income/ CMR
Desired Sales with Tax Equation (In UNITS)
Fe + (Income/1-Tax Rate)/CM per Unit
Desired Sales with Tax Equation (In DOLLARS)
Fe + (Income/1-Tax Rate)/CMR
When it comes to Decision Making….IF there is any Monetary benefit….
You Likely Say Yes
Accepting a Special Order
You Accept it with any Benefit because you assume that if you dont you will lose that demand
UNLESS THEY SAY OTHERWISE
Make or Buy
Never incorporate Fixed Costs UNLESS the question says they are unavoidable
Margin of Safety
Difference between the budgeted sales revenue and the break-even sales revenue
Steps in the Decision Process
Clarify the decision problem
Specify the Criterion
Identify the Alternatives
Develop a Decision Model
Collect Data
Select an Alternative
Evaluate decision effectiveness
Relevant Range
Where management expects the firm to operate
Activities supported by managerial accounting
Decision Making
Planning
Directing Operations
Controlling
3 Ways to Categorize Behavior
Timing
Assignment
Behavior
Timing
Product Cost vs. Period Cost
Assignment
Direct or Indirect?
Manufacturing Inventory and Cost Flows
Prime Costs and Conversion Costs
Behavior
How does the cost behave?
VC or FC
Relevant Change
Mixed Costs (Semi-variable)
A cost with both a fixed and a variable component.
CVP Graph
Profit Graph