Managerial Accounting
Calculating Percent Change
(Alternative measure - base measure) ÷ base measure = percentage change
Income Statement
A financial statement that reports a company's revenues and expenses and resulting net income or net loss for a specific period of time.
Product Costs
All costs that are involved in acquiring or making a product. In the case of manufactured goods, these costs consist of direct materials, direct labor, and manufacturing overhead.
Managerial Accounting
Concerned with relevance and timeliness. "What is expected to happen tomorrow". Delivered on a continuous basis.
Contribution Margin Ratio
Contribution Margin / Sales
Magnitude of Operating Leverage
Contribution Margin ÷ Net Income
upstream costs
Costs incurred before beginning the manufacturing process, such as research and development and product design costs
fixed costs
Costs that do not vary with the quantity of output produced
selling, general and administrative expenses (SG&A)
Period costs are all costs not associated with a product. They are associated with the general, selling, and administrative functions of the business and are generally expensed in the period in which the associated economic sacrifices are made. A period cost would be rent on administrative facilities.
Income Statement Equation
Revenues - Expenses = Net Income
Typical GAAP based income statement
Sales revenue - cost of goods sold (midstream costs) = Gross Margin -General, selling, and administrative costs (upstream and downstream costs) = Net income
Contribution Margin
The amount remaining from sales revenues after all variable expenses have been deducted.
Product Cost
The cost of purchasing or making a product. The cost is recorded as an asset and then expensed when the product is sold.
Corporate Governance
The set of relationships between the board of directors, management, shareholders, auditors, and other stakeholders that determine how a company is operated
Variable Cost Behavior
Total variable cost increases in direct proportion to the number of units sold
downstream costs
are costs incurred after the manufacturing process including marketing, distribution, and customer services
selling and administrative costs
are expensed immediately and not considered part of inventory
Expenses
assets used in the process of earning revenue
midstream costs
composed of the costs incurred in the process of making products including direct materials, direct labor, and manufacturing overhead. GAAP allows midstream costs to be recorded as inventory.
variable costs
costs that vary with the quantity of output produced
variable cost per unit formula
difference in total cost/difference in production
Percentage change
difference/original x 100
Components of product cost
direct materials, direct labor, manufacturing overhead
Which of the following would be included in manufacturing overhead?
indirect materials, indirect labor, depreciation on manufacturing facilities, rent on manufacturing facilities, factory utilities
product costing
involves accumulating and allocating the costs of all inputs in the manufacturing or acquisition process to individual products
Cost of Goods Sold (COGS)
number of units sold multiplied by the unit product cost
3 elements typically present when fraud occurs
opportunity pressure rationalization
wages paid to production workers
recorded as inventory as opposed to being expensed because the cash is not used to produce revenue it is used to produce inventory
The primary difference b/w how manufacturing and service companies handle product costs is that
service companies expense product costs because their services are consumed immediately
Cost of Goods Sold
the amount of money a firm spent to buy or produce the products it sold during the period to which the income statement applies Beginning finished goods inventory + cost of goods manufactured - ending finished goods inventory
Managerial Accounting
the internal use of accounting statements by managers in planning and directing the activities WITHIN the organization
