managerial accounting

beginning balance + additions to inventory = ending balance + withdrawals from inventory

• Raw Materials
• Beginning raw materials + Raw materials purchased = Raw Materials available for use in production - Ending raw materials inventory = Raw Materials used in production
• Manufacturing Costs
• Direct Materials + Direct Labor + Manufacturing Overhead = Total Manufacturing costs
• Work in Process
• Beg. work in process inventory + Total Mfg. cost = Total Work in process for the period - Ending work in process inventory = Cost of Goods Manufactured

• WORK IN PROCESS
• Beg Work in process Inventory + Total Mfg costs = Total work in process for the period - Ending work in process inventory = Cost of Goods Manufactured
• FINISHED GOODS
• Beg. Finished goods inventory + Cost of Goods Manufactured = Cost of Goods Available for Sale - Ending finished goods inventory = Cost of Goods Sold

Direct Materials, Direct Labor, Manufacturing Overhead

• Raw materials that become an integral part of the product and that can be conveniently traced directly to it.
• Ex. Radio installed in a car

• labor costs that can be easily traced to individual units of product.
• Ex. Wages paid to automobile assembly workers

• costs cannot be traced directly to specific units produced
• ex. Indirect Materials
• Materials used to support the production process. Examples: Lubricants and cleaning supplies used in the automobile assembly plant.
• ex. direct materials= Wages paid to employees who are not directly involved in production work. Examples: Maintenance workers, janitors and security guards.

• Selling costs = Costs necessary to get the order and deliver the product
• Administrative costs = All executive, organizational, and clerical costs.

• Rent on equipment used in the factory, Lubricants used for machine maintenance, Soap and paper towels used by factory workers at the end of a shift. Factory supervisors' salaries, Heat, water, and power consumed in the factory,Manufacturing equipment depreciation. Direct materials costs.
• Electrical costs to light the production facility.

Depreciation on salespersons' cars. Salaries of personnel who work in the finished goods warehouse. Advertising costs. The wages of the receptionist in the administrative offices.Property taxes on corporate headquarters.Sales commissions

• Total variable costs change when activity changes. Variable Cost per unit remains the same over wide ranges of activity
• Ex. 1.Merchandising companies – cost of goods sold. 2.Manufacturing companies – direct materials, direct labor, and variable overhead. 3.Merchandising and manufacturing companies – commissions, shipping costs, and clerical costs such as invoicing. 4.Service companies – supplies, travel, and clerical.

• Total fixed costs remain unchanged when activity changes. Avg fixed cost per unit goes down as activity level goes up.Ex. CommittedLong-term, cannot be significantly reduced in the short-term.--
• Examples Depreciation on Buildings and Equipment and Real Estate Taxes. Discretionary May be altered in the short-term by current managerial decisions-- Examples Advertising and Research and Development

• SC = Cost of the old X-ray machine
• DC= Cost of electricity to run the X-ray machines
• OC= Benefits from a new DNA analyzer

• Direct costs that can be easily and conveninetly traced to a unit of product or other cost object. Ex-- Direct material and direct labor
• Indirect costs that cannot be easily traced . Ex-- manufacturing overhead

• a.Fixed costs per unit vary with the level of activity.
• b.Variable costs per unit are constant within the relevant range.
• c.Total fixed costs are constant within the relevant range

• Y= a + bX
• Y=the total mixed cost
• a=the total fixed cost ( the vertical intercept of the line)
• b=the variable cost per unit of activity (the slope of the line)
• X=the level of activity

• The variable cost per hour of maintenance is equal to the change in cost divided by the change in hours. Ex Hours Cost
• High 800 9800
• Low 500 7400
• Change 300 2400 = $2400/300 hours= 8.00/hour

• Total Fixed Cost = Total Cost – Total Variable Cost
• Total Fixed Cost = $9,800 – ($8/hour × 800 hours

Absorption costing

(costs organized by behavior and used primarily by management) Sales - Variable expenses = Contribution Margin - Fixed Expenses = Net Operating Income

(costs organized by function and used primarily for external reporting) Sales - Cost of Goods Sold = Gross Margin - Operating Expense = Net Operating Income

• Absorption Costing Product Cost= Direct Materials, Direct Labor, Variable MOH,Fixed MOH. Period Cost= Variable Selling And administrative expenses, fixed selling and administrative expenses
• Variable Costing Product Cost= Direct materials, direct labor, Variable MOH. Period Cost= Fixed MOH, variable selling and administrative expenses, fixed selling.

• Profit = (Sales – Variable expenses) – Fixed expenses
• Sales = Quantity Sold (Q) x Selling Price Per Unit (P)
• Variable Expenses= (Q) x Variable Expenses per unit (V)
• Profit= (QxP - QxV) - Fixed Expenses

The CM ratio is calculated by dividing the total contribution margin by total sales.

1.Draw a line parallel to the volume axis to represent total fixed expense. 2.Choose some volume of unit sales and plot the point representing total expense (fixed and variable) at the sales volume you have selected. 3. Again choose some sales volume and plot the point representing total sales dollars at the activity level you have selected

• Two ways to find the Target profit by The Equation forumula= Profit = Unit CM × Q – Fixed expenses
• The Formula Method= Unit sales to attainthe target profit= (Target profit + Fixed expenses) / CM per unit

• Equation Method Profits = Unit CM × Q – Fixed expenses *
• Profits are zero at the break-even point. Forumula Method Unit sales to break even= Fixed expenses /CM per unit

• Equation Method Profit = CM ratio × Sales – Fixed expenses (solve for sales)
• Forumula Method Dollar sales tobreak even= Fixed expenses / CM ratio

• is the excess of budgeted (or actual) sales over the break-even volume of sales.
• Margin of safety in dollars = Total sales - Break-even sales

• is a measure of how sensitive net operating income is to percentage changes in sales. It is a measure, at any given level of sales, of how a percentage change in sales volume will affect profits.
• Degree of operating leverage= Contribution margin / Net operating income

Multiply the percentage being raised by the operating leverage to get the percent increase in profits