Managerial Accounting
80 flashcards by MentisLibrary
Cost behavior, contribution margin, break-even and CVP, budgeting, variance analysis, and costing methods. The internal numbers managers use to price, plan, and decide.
- Managerial versus financial accounting
- Managerial accounting produces internal information for decisions and control; financial accounting produces external statements for investors and regulators.
- What is a fixed cost?
- A cost whose total stays constant over the relevant range regardless of activity level.
- What is a variable cost?
- A cost whose total changes in direct proportion to activity, while cost per unit stays constant.
- What is a mixed or semi-variable cost?
- A cost containing both a fixed component and a variable component.
- What is a step cost?
- A cost that stays constant over a range of activity then jumps to a new level.
- What is the relevant range?
- The band of activity within which the assumed cost behavior actually holds.
- What is the high-low method?
- Estimating variable and fixed cost components using only the highest and lowest activity observations.
- What are product costs?
- Costs of making the product: direct materials, direct labor, and manufacturing overhead. They attach to inventory.
- What are period costs?
- Non-manufacturing costs expensed in the period incurred.
- What are direct materials?
- Raw materials that can be traced conveniently and directly to the finished product.
- What is direct labor?
- Wages for workers whose effort can be traced directly to specific units of product.
- What is manufacturing overhead?
- All manufacturing costs other than direct materials and direct labor.
- Prime cost versus conversion cost
- Prime cost is direct materials plus direct labor; conversion cost is direct labor plus manufacturing overhead.
- What is contribution margin?
- Sales revenue minus variable costs, the amount available to cover fixed costs and then produce profit.
- What is the contribution margin ratio?
- Contribution margin as a percentage of sales.
- What is the break-even point in units?
- The sales volume at which total contribution margin exactly covers fixed costs, so profit is zero.
- What is the break-even point in sales dollars?
- Fixed costs divided by the contribution margin ratio.
- How do you compute the units needed for a target profit?
- Treat the target profit as an additional fixed cost to cover.
- What is the margin of safety?
- The amount by which actual or budgeted sales exceed break-even sales.
- What is operating leverage?
- The sensitivity of operating income to a change in sales, driven by the mix of fixed and variable costs.
- What are the key assumptions behind CVP analysis?
- Selling price and cost behavior are constant, the sales mix is fixed, costs split cleanly into fixed and variable, and volume is the only cost driver.
- How does sales mix affect break-even?
- Break-even is computed on a weighted average contribution margin, so shifting toward lower-margin products raises the break-even point.
- What is absorption costing?
- A method assigning all manufacturing costs, including fixed overhead, to units of product.
- What is variable costing?
- A method treating only variable manufacturing costs as product costs and expensing fixed overhead as a period cost.
- How does production volume change income under absorption costing?
- Producing more than you sell defers fixed overhead into inventory, raising reported income even with flat sales.
- When do absorption and variable costing report the same income?
- When production equals sales, so no fixed overhead is deferred into or released from inventory.
- What is job order costing?
- A system accumulating costs by individual job or batch, used when output is customized.
- What is process costing?
- A system accumulating costs by process or department and averaging them across identical units.
- What are equivalent units?
- Partially finished units restated as the number of fully complete units they represent.
- What is a predetermined overhead rate?
- An overhead application rate computed before the period from estimated cost and estimated activity.