Managerial Accounting Ch 1

Cost Object

Anything for which cost data are desired

Variable Cost Graph

Change in same direction in total No change per unit

Types of Fixed Costs

Committed fixed costs- represent organizational investments with a multiyear planning horizon that cant be significantly reduced even for short periods of time without making fundamental changes (LONG TERM) Discretionary fixed costs - (managed fixed costs) usually arise from annual decisions by management on certain fixed cost items(SHORT TERM)

Manufacturing Costs

Direct Materials - the materials that go into the final product are called raw materials. Direct Labor - consist of labor costs that can be easily and conveinently traced to individual units of product Manufacturing Overhead-the third element of manufacturing cost, includes all manufacturing costs except direct materials and direct labor. Indirect material light property, maintenance, taxes, Prime Cost- direct materials + direct labor Conversion Cost - direct labor and manufacturing overhead cost

Fixed Cost Graph

No change in total Change in opposite Direction per unit

Product Costs vs Period Costs

Product Cost- all costs involved in acquiring or making a product direct materials direct labor and manufacturing overhead Period costs- the costs that are not product costs (ALL SELLING AND ADMINISTRATIVE EXPENSES) sales commision advertising executive salaries public relations and the rental costs of administrative offices

Traditional Format

Sales -COGS (Beg. Merch Inv +Purchases - end merch inv) =gross margin ____________ Selling and administrative expenses -Selling -Administrative =Net operating Income

Contribution Format

Sales -Variable Expenses -Cogs - Variable selling -Variable administrative =Contribution Margin ------------------------------- Fixed Expenses -Fixed Selling -Fixed administrative =Net operating income

Nonmanufacturing Costs

Selling costs - include all costs that are incurred to secure customer orders to get the finished product to the customer Administrative costs - include all costs associated with the general management of an organization rather than with manufacturing or selling.

Scattergraph Plot

Total cost y is plotted on the vertical axis, and is known as dependant variable activity x is independent variable and plotted on the horizontal axis

Variable, Fixed, and Mixed Costs

Variable cost - varies in total in direct proportion to changes in the level of activity. fixed costs- is a cost that remains constant, in total, regardless of changes in the level of activity Mixed Cost- contains both variable and fixed cost elements y=a+bx y= total mixed cost a=total fixed cost b=variable cost per unit x=level of activity

R^2

a measure of how good of a fit the regression line is to the data points

Direct Cost vs. Indirect Costs

costs that can be easily and conveniently traced to a cost object. Directly traced Vs. costs that cannot be easily and conveniently traced to a cost object

sunk costs

have already been incurred and cannot be changed or in the future -these costs should be ignored when making decisions

Relevant Costs

only those costs and benefits that choose between alternatives are relevant

Opportunity costs

potential benefit that is given up when one alternative is selected over another

Least squares regression method

the goal is to fit a straight line to the data that minimizes the sum of the squared errors - uses all info

High Low method

uses two points Variable COST: TOtal cost hi - total cost low / Activity Hi - Activity Low = the # per unit Fixed cost = Total cost - variable cost element (.80 *hiact)