Managerial Accounting
Administrative costs
"general management" executive compensation, general accounting, secretarial, public relations,
Variable cost
(Change in cost/Change in activity) identify the periods for cost and activity with the lowest level of activity and the period with the highest and find the difference
Change in contribution margin
CM ration x Change in sales
CM ratio
Contribution margin/sales or (Sales- variable expenses)/sales or 1- variable expense ratio
Variable cost In Total
Cost increases and decreases in proportion to changes in the activity level.
Cost of goods Sold
Cost of goods sold = Beginning inventory + Purchases - ending inventory
Variable cost examples
Cost of goods sold for a merchandising company, direct materials, direct labor, variable elements of manufacturing overhead
Inventoriable costs
Emphasize that product costs are NOT necessarily treated as expenses in the period in which they are incurred. Rather, as explained above, they are treated as expenses in the period in which the related products are sold.
Fixed cost Per Unit
Fixed Cost per unit decreases as the activity level rises and increases as the activity level falls.
Fixed cost In Total
Is not affected by changes in the activity level within the relevant range.
indirect manufacturing cost, factory overhead, and factory burden all examples of
Manufacturing overhead
Equation Method
Profit=Unit CM x Q - Fixed expenses
High low method
SLOP (rise/run)
Unit sales to attain the target profit
Target profit + Fixed expenses / Unit CM
Fixed Cost element
Total cost - Variable cost element (high low method)
Variable cost Per Unit
Variable cost per unit remains constant
Selling costs
advertising, shipping, sales travel, sales commissions, cost of finished goods in warehouses
Product costs
all costs involved in acquiring or making a product.
Contribution margin
amount remaining from sales rev after variable expenses have been deducted
Incremental analysis
considers only the revenue, cost, and volume that will change if the new program is implemented.
Variable expense ratio
ratio of variable expenses to sales. Variable expenses/sales or V exp per/unit sales p
Prime cost
sum of direct materials cost and direct labor cost
conversion cost
sum of direct materials cost and manufacturing overhead cost.