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.