Management accounting o SEMI-VARIABLE: with fix and variable

- accumulation and preparation of financial components

reports for internal users only
- needed by management in planning, ANALYZING MIXED COSTS
controlling and evaluating the entity’s o Scattergraph:
operations - subjective and inexact
- produce budgets, performance evaluations - simple and intuitive
and cost reports o High-low method:
- subjective, relevant, future oriented - uses only two data points, which may
- reports as needed not represent the general trend in the
- decision making data
o Least square regression:
Financial accounting - requires more data and assumptions
- concerned with recording of business - proper interpretation of results is
transactions and the eventual preparation critical
of financial statements - uses all data points
- intended for internal and external users
- produce financial statements according to ACCOUNTING PERIOD
GAAP o Capital expenditure:
- objective, reliable, historical - benefit more than one accounting
- reports periodically periods
- company as a whole - asset
o Revenue expenditure:
COST CONCEPTS AND BEHAVIOR - benefit current period only
- expense
Cost: cash or cash equivalent value sacrificed for
goods and services that are expected to bring a PLANNING AND CONTROL
current or future benefit to the organization o Standard costs:
- predetermined cost for DM, DL & FO
DIRECT INDIRECT o Opportunity cost:
Can be directly and Cannot be directly - benefit given up when one alternative is
conveniently traced to the and conveniently chosen over the other
cost object traced to the object o Differential cost:
MANUFACTURING/ NON- - cost that is present under one
PRODUCT MANUFACTURING/ alternative but absent in whole or part
Producing a physical PERIOD under another alternative
product Running the o Relevant cost:
o Direct materials: business and selling - potential to influence a decision; it must
material inputs that can the product occur in the future and differ between
be directly and o Distribution the alternatives
conveniently traced to costs o Out of pocket cost:
each unit of product o Administrative - cost that requires the payment of money
o Direct labor: expenses (or other assets)
employees who o Finance costs o Sunk cost:
physically convert - a cost of which an outlay has already
materials to finished been made and it cannot be changed by
products any or present future decision
o Manufacturing
overhead: indirect COST VOLUME PROFIT ANALYSIS
costs incurred to
produce products. o Contribution Margin Income Statement
Sales
TOTAL MANUFACTURING COST= direct Variable cost
materials + direct labor+ manufacturing overhead Contribution Margin
(Fixed costs)
Prime cost= direct materials + direct labor Net income
o Focuses on interactions between the five
Conversion cost= direct labor + manufacturing elements:
overhead - price of products
- volume or level of activity
COST CLASSIFICATION - variable cost per unit
- total fixed costs
o VARIABLE: change in total, in relation to - mix of products sold
volume
o FIXED: remain constant, in total, 𝑾𝒆𝒊𝒈𝒉𝒕𝒆𝒅 𝒂𝒗𝒆𝒓𝒂𝒈𝒆 𝑪𝑴 = 𝑪𝑴 𝒙 𝒓𝒂𝒕𝒊𝒐
irrespective of the volume
MARGIN OF SAFETY
 - the amount by which sales could decrease
before losses are incurred

𝑀𝑂𝑆 = 𝐴𝑐𝑡𝑢𝑎𝑙 𝑠𝑎𝑙𝑒𝑠 – 𝐵𝑟𝑒𝑎𝑘𝑒𝑣𝑒𝑛 𝑠𝑎𝑙𝑒𝑠

𝑀𝑂𝑆
𝑀𝑂𝑆 𝑅𝑎𝑡𝑖𝑜 =
𝐴𝑐𝑡𝑢𝑎𝑙 𝑆𝑎𝑙𝑒𝑠
OPERATING LEVERAGE
- potential effect of the risk that sales will fall
short of planned levels as influenced by the
relative proportion of fixed to variable
manufacturing costs

𝐶𝑜𝑛𝑡𝑟𝑖𝑏𝑢𝑡𝑖𝑜𝑛 𝑀𝑎𝑟𝑔𝑖𝑛
𝐷𝑂𝐿 =
𝑁𝑒𝑡 𝑖𝑛𝑐𝑜𝑚𝑒

PREDETERMINED OVERHEAD RATE

𝑷𝑶𝑹
𝑬𝒔𝒕𝒊𝒎𝒂𝒕𝒆𝒅 𝒕𝒐𝒕𝒂𝒍 𝒎𝒂𝒏𝒖𝒇𝒂𝒄𝒕𝒖𝒓𝒊𝒏𝒈 𝒐𝒗𝒆𝒓𝒉𝒆𝒂𝒅 𝒓𝒂𝒕𝒆
=
𝑬𝒔𝒕𝒊𝒎𝒂𝒕𝒆𝒅 𝒕𝒐𝒕𝒂𝒍 𝒄𝒐𝒔𝒕 𝒅𝒓𝒊𝒗𝒆𝒓

𝑨𝒑𝒑𝒍𝒊𝒆𝒅 𝑴𝑶 = 𝑷𝑶𝑹 𝒙 𝑨𝒄𝒕𝒖𝒂𝒍 𝒄𝒐𝒔𝒕 𝒅𝒓𝒊𝒗𝒆𝒓