directed towards providing info to managers inside the organization
Reports are provided outside the organization-external reports
Must follow GAAP which has specific required external reports
Does not follow GAAP and has no reporting regulations
Include all costs that are required to make a product. Include Direct Material, Direct Labor, and Manufacturing Overhead
Selling and Administrative costs. These costs are reported on the income statement they are incurred. Not a part of manufacturing overhead, not related to making the product.
all cost associated with marketing the finished products and getting the product to the customer.
costs incurred for the general administration of the organization
direct materials + Direct Labor
Direct Labor + Manufacturing Overhead. What it costs to take the materials and convert them into a finished product.
a cost that can be easily and conveniently traced to one product. They are direct materials and direct labor
a cost that cannot be easily and conveniently traced to one product. Ex: manufacturing overhead and period costs
costs that are incurred to manufacture products. They include anything that becomes part of the product, anyone who touches teh product to make it, and all the costs of the facilities and management incurred to make the product.
Direct Materials, Direct Labor, Manufacturing Overhead
The three major categories of product costs
raw materials that become part of the finished product.
workers that touch the product to make the product- also includes workers who operate the machine if the product is made by the machine
all costs of manufacturing the product except direct materials and direct labor. Ex: utilities support personnel, human resources, computer support
involved in making the product at teh plant but do not touch the product to make it. Ex: salaries, supervisors and quality inspectors
low cost materials that end up in the product or are used to make the product. Ex: glue, tape, screw
a detailed listing of what is estimated to be required and what is estimated to cost to make one product or provide one service.
the amount you expect to pay and the quantity you expect to use to make one product.
how much is expected to be used to makle one product
how much is expected to be paid for one quantity.
can be achieved only under ideal perfect circumstances
are tight but attainable and allow for normal downtime and waste
Changes in total, in direct proportion to changes in the level of activity. The total cost increase/decreases as units made increases/decreases. It is constant if expressed on a per unit basis. Costs that vary with sales.
if it costs you more if you make or sell one more
Total cost does not change with changes in the volume of activity (within a relevant range) The cost per unit will change as teh number of units change. Ex: rent, insurance
one that contains both variable and fixed costs elements.
minimum cost of having a service ready and available for use
cost incurred for actual consumption of the service.
Total Mixed Costs
Total fixed cost $ + (Variable cost $ per activity X the number of the activity)
The range of activity where the assumption about cost behavior is valid.
The potential benefit that is given up when one alternative is selected over another alternative. They are not recorded/reported because they do not occur. The cost is the benefit that you gave up.
Cost that is already paid for and can not be changed by a decision made now or in the future.
Investment in facilities, equipmnt and the basic operations of the company. They are long term in nature and can't be significantly reduced.
annual decisions made by management to spend in certain areas for certain things
Total Variable Cost
Total Cost $-Fixed Cost$
Variable Cost Per unit of activity
Total Variable Cost/ Total Activity
Total Fixed Cost + (variable cost per activity X # activity
(Cost at high activity level- cost at the low activity level) / (High activity level-low activity level)
Total Cost - (variable cost per X # of activity)
The amount available to cover fixed costs and give profit
Contribution Margin per unit
Sales price per unit - all variable costs per unit
Contribution Margin ratio
contribution margin (in total per unit) /Sales
Change in Contribution Margin
Change in Sales X Contribution Margin Ratio
Occurs when profit = 0 which occurs when contribution margin = fixed cost
Break Even in Units
Fixed Costs/ Contribution Margin Per unit
Break Even in Sales
Fixed Costs / Contribution Margin Ratio (%)
% increase in profits
operation leverage factor X % increase in sales
% increase in profits X current profits
added profits + current profits
The Percentage of total sales for each product. This is important when a company has more than one product. A change in sales mix can change the total profit.
Total Contribution Margin %
Total Contribution Margin for the Company / total sales for the company
Expected Contribution Margin
Expected Sales X CM Ratio
Current Contribution Margin
Less Current Sales X % CM ratio
Costs to operate the manufacturing facility
finished goods: product not yet sold
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