Managerial Accounting

• all costs related to obtaining or manufacturing a product intended for sale to customers
• accumulated in inventory accounts and expensed as cost of goods sold at the point of sale

general, selling, and administrative costs that are expensed in the period in which the economic sacrifice is incurred

• materials
• labor
• overhead

• product cost -> asset -> COGS
• period cost ----> expense

• raw materials: materials waiting to be processed
• work in process: partially complete products - material to which some labor and/or overhead has been added
• finished goods
• finished goods: completed products awaiting sale

BI + cost added = cost transferred + EI

• Materials Inventory:
• BI + Material Purchase - Material Used = EI

• Work In Process Inventory:
• BI + Material Used + Labor + Overhead - Cost of goods manufactured = EI

• Finished Goods Inventory:
• BI + cost of goods manufactured - cost of goods sold = EI

• Indirect costs
• depreciation- supervisor's salary- utilities

• service companies: provide services to customers
• merchandising companies: sell products other companies make

also incur materials, labor, and overhead costs, these costs are normally treated as general, selling and administrative expenses rather than accumulated in inventory accounts

• total fixed cost remains constant
• fixed cost per unit:
• activity increases: cost per unit decreases
• activity decreases: cost per unit increases

• total variable cost:
• activity increases: increases proportionately
• activity decreases: decreases proportionally
• variable cost per unit: remains constant

total variable cost increases in direct proportion to the number of tickets sold

a mixed cost has both fixed and variable components

total costs that remain constant

total costs that increase as activity increases

operating leverage

• a measure of the extent to which fixed costs are being used in an organization
• greatest in companies that a have a high proportion of fixed costs in relation to variable costs
• when all costs are fixed, every additional sales dollar contributes one dollar to gross profit

• more risk and more reward
• low risk and less reward

high profit

• risk: refers to the possibility that sacrifices may exceed benefits
• risk may be reduced and potential for profits by converting fixed costs into variable costs

will gain the most

the all fixed company

• sales revenue
• less: variable costs
• Contribution margin
• less: fixed costs
• Net Income/ operating profit

• the excess of sales over the cost of goods sold
• revenue - COGS = GM

the cost of the merchandise that is acquired or manufactured and resold

• focuses on sales in relation to all variable costs
• format emphasizes cost behavior
• covers fixed costs and provides income

• sales revenue
• Less: COGS (V+F)
• Gross Margin:
• Less: SGA (V+F)
• Operating Profit

Fixed costs are better if volume is increasing, but variable costs may be better if business is declining

• operating leverage = Contribution margin/ net income
• operating leverage is a measure of how a percentage change in sales will effect profits

total fixed cost doesn't change for a range of activity, and then jumps to a new higher cost for the next higher range of activity

• our variable cost assumption (constant unit variable cost) applies within the relevant range
• economy of scale -> get better price