98 terms

Managerial Accounting

Marginal Cost
Extra cost of producing one additional unit of production.
Unit Cost
The average production cost per unit
Continuous Improvement
Ongoing small, incremental improvements in all parts of an organization
short term approach to enhancing efficiency that focuses on improving an existing process or an activity within a process
Direct Cost
a cost that can be easily and conveniently traced to a specified cost object.
Direct Labor
the labor specifically used in the creation of a good.
Direct Materials
the materials specifically used in the creation of a good.
Indirect Cost
a cost that cannot be easily and conveniently traced to a specified cost object, a part of manufacturing overhead.
Manufacturing Overhead
everything that is indirectly involved with the production of a good. not direct materials and not direct labor
Product/ Inventorial Cost
costs that are a necessary and integral part of producing the finished product. shows up on the balance sheet until product is sold.
Period Cost
all non-manufacturing costs, deducted as an expense in the accounting period in which they are incurred.
Variable Cost
a cost that rises or falls depending on how much is produced. they are constant.
Fixed Cost
a cost that does not change, no matter how much of a good is produced
Differential Cost
A relevant costs: costs that can be avoided when alternatives are changed.
Opportunity Cost
Cost of the next best alternative use of money, time, or resources when one choice is made rather than another
Sunk Cost
Any cost that has already been incurred and that cannot be changed by any decision made now or in the future. It is never relevant
Total Quality Management: A process developed by Dr. W. Ed Deming to increase productivity through quality control techniques.
Just in Time
An inventory control system that coordinates demand and supply to the point where desired materials arrive just when they are needed. Developed by the auto industry, it refers to shipping goods in smaller, more frequent lots.
Theory of Constraints
A specific approach used to identify and manage constraints in order to achieve the company's goals.
Process Re engineering
The fundamental rethinking and radical redesign of the business process to achieve dramatic improvement in critical measures of performance such as cost, quality, service, and speed
Gross Margin a.k.a. Gross Profit
Net Sales - COGS
Relevant Range of Activity
Range of Activity where the assumptions about cost are valid
Linear Equation
Y= a+bx
Y - total mixed cost
a - fixed costs
b - y intercept
Committed Fixed Cost
Cannot be changed or eliminated with ease.
Discretionary Fixed Cost
Can change/eliminate the fixed cost.
Contribution Margin
Amount of money available after subtracting your variable costs. Sales Revenue-Variable Cost
Cost Driver/ Allocation Base
A factor, such as machine-hours, beds occupied, computer time, or flight-hours, that causes overhead costs. The denominator
Prime Costs
Direct Materials + Direct Labor
Conversion Costs
Direct Labor + Manufacturing Overhead
Direct Costs
a.k.a. Product Costs, Inventorial Costs
Product Costs
Direct Labor, Direct Materials, Manufacturing Overhead
Raw Materials, Work in Progress, FG
Performance Report
A report showing a comparison of projected and actual amounts for a specific period of time.
High-Low Method
A mathematical method that uses the total costs incurred at the high and low levels of activity to classify mixed costs into fixed and variable components.
Step Variable Costs
total cost remains constant within a narrow range of activity, total cost increases to a new higher cost for the next higher range of activity
Cost of Goods Sold equation
D. Beginning inventory + net purchases - ending inventory.
Contribution Approach to Income Statement
An income statement format that organizes costs by their behavior. Costs are separated into variable and fixed categories rather than being separated into product and period costs for external reporting purposes.
Process Costing
A cost accounting system in which the costs are collected by time period and averaged over all the units produced during the period. This system can be used with either actual or standard costs in the manufacture of a large number of identical units. i.e.
Job Order Costing
charge direct material and direct labor cost to each job as work is performed
Cost of Goods Sold as it relates to the Cost of Goods Manufactured
The decrease in accounts payable is equal to the increase in inventory during the period
Manufacturing Overhead Applied
Predetermined Overhead Rate-Activity of the Cost Driver
Flow of Costs in a manufacturing system
Relevant Cost
A cost that is relevant to a particular decision because it is a future cost and differs among alternatives
COGM equation
raw material + labor +manufacturing overhead
COGS equation
COGS = BI + P - EI
Income Statement equation
Revenues - Expenses = Income
Merchandise Purchases
Total Cost on Total Cost Job Sheet
Over/Under Applied Manufacturing Overhead
Predetermined Overhead Rate
A rate based on the relationship between estimated annual overhead costs and expected annual operating activity, expressed in terms of a common activity base.

2 numbers, Estimated OH/ Estimated CD
Predetermined Overhead Rate in Two Departments
A rate used to charge manufacturing overhead cost to jobs that is established in advance for each period. It is computed by dividing the estimated total manufacturing overhead cost for the period by the estimated total amount of the allocation base for the period.
Work in Process Inventory Balance
High Low Method
VC Per Unit = Change in Cost/ Change in Activit
dividing the market into different income brackets
Traceable Fixed Cost
A fixed cost that is incurred because of the existence of a particular business segment and that would be eliminated if the segment were eliminated
Common Fixed Cost
A fixed cost that supports more than one business segment, but is not traceable in whole or in part to any one of the business segments.
Segment Margin
Contribution Margin - Traceable fixed costs
CVP Analysis
studies the behavior and relationship among these elements as changes occur in units sold, selling price, VC per unit and the FC per unit
Value Chain
Breakeven Point Formula
units: Total Fixed Costs / CM per unit
Breakeven Point Formula $
Fixed Costs / (Selling Price per unit - Variable Cost per unit)
Contribution Margin %
CM per unit / Sales Price per unit
Unit Contribution Margin
Sales Price - Variable Costs
Total Contribution Margin
difference between revenues and total variable costs
Target Net Income
required sales - variable costs- fixed costs= target net income
Operating Leverage Formula
Contribution margin / operating profit
Net Operating Income
Revenue - COGS - Non manufacturing Costs
Target Profit Formula
(Target profit + FC)/ CM ratio *which equals sales dollars needed to achieve a certain profit
an estimate of income and expenditure for a set period of time
Budgeted Income
a managerial accounting report showing predicted amounts of sales and expenses for the budget period.
Statement/Balance Sheet/ Retained Earnings Statement
Sales Forecast
an estimate of sales for a given period, such as the next quarter
Production Budget
A detailed plan showing the number of units that must be produced during a period in order to satisfy both sales and inventory needs
Cash Budget
a budget that estimates cash inflows and outflows during a particular period like a month or a quarter
Administrative Expense Budget
expenses not included in marketing the company's products
Summary Budget
Provides an itemized forecast of estimated or intended expenditures.
Indirect Cost Budget
Operating Budget
budget for day-to-day expenses
A budget that states how managers intend to use organizational resources to achieve organizational goals.
Zero-Based Budgeting
a budgeting approach in which each department starts from zero every year and must justify every item in the budget, rather than simply adjusting the previous year's budget amounts
Responsibility Accounting
involves accumulating and reporting costs on the bassi of the manger who has the authority to make the day-to-day decisions
Performance Report
a report showing a comparison of projected and actual amounts for a specific period of time
Benefits of Budgeting
requires managers to plan, coordination and communication, benchmark for evaluating actual performance,budgeting begins months before beginning of period
Purchases of Raw Materials in the 3rd Quarter
direct materials
How many Units should be Purchased/Produced
Budgeted ending inventory + Budgeted sales for month - budgeted beginning inventory = budgeted purchases for mont
Production Budget Formula
Required Production Units = Budgeted Sales Units + Desired Ending Finished Goods Units - Beginning Finished Goods Units
How Much Cash should be Collected/Disbursed
Working Capital
Cost of Direct Materials Used
DM BI + Purchases - DM EI = DM Used in Production
Cost of Purchases Formula
Cash Disbursements for the Month
in cash budget as cash disbursements
Materials Price Variance
The difference between the actual unit price paid for an item and the standard price, multiplied by the quantity purchased.
Material Quantity Variance
Labor Rate Variance
The difference between the actual hourly labor rate and the standard rate, multiplied by the number of hours worked during the period.
Labor Efficiency Variance
The labor efficiency variance is the difference between actual direct labor hours worked, and the standard quantity of hours allowed for actual production, times the direct labor wage rate per hour.
Variable Overhead Rate Variance
Also called the variable overhead spending variance. This variance tells managers whether more or less was spent on variable overhead than they expected would be spent for the hours worked. It is calculated as follows: AH × (AR − SR).
Actual variable overhead cost incurred - standard cost that should have been incurred based on actual activity; AH x (AR-SR)
Variable Overhead Efficiency Variance
(standard variable rate) (actual hours - standard hours)
What department is held responsible for Variance
noun: the quality of being different
Net Profit
Gross Profit - Expenses