Total product cost =
Direct materials + Direct labor + Manufacturing overhead
Unit product cost =
Total product cost / number of units
Prime cost =
Direct materials + Direct labor
Conversion cost =
Direct labor + Manufacturing overhead
Direct materials used in production =
Beginning inventory of materials + Purchases - Ending inventory of materials
Cost of good manufactured =
Direct materials used in production + Direct labor used in production + Manufacturing overhead costs used in production + Beginning WIP inventory - Ending WIP inventory
Cost of goods sold =
Beginning finished goods inventory + Cost of goods manufactured - Ending finished goods inventory
Cost formula =
Total cost = Total fixed cost + (variable rate x units of output)
Total variable cost =
Variable rate x Units of output
Sales revenue =
Price x Units sold
Operating income =
(Price x Units sold) - (Unit variable cost x Units sold) - Fixed cost
Break-even point in units =
Fixed cost / (Price - Unit variable cost)
Contribution margin ratio =
Total contribution margin / Sales -or- (Price - Unit variable cost) / Price
Variable cost ratio =
Total variable cost / Sales -or- Unit variable cost / Sales
Break-even point in sales dollars =
Fixed cost / Contribution margin ratio -or- Fixed cost / (1 - Variable cost ratio)
Margin of safety =
Sales - Break-even sales
Degree of operating leverage =
Total contribution margin / Operating income
Percentage change in profits =
Degree of operating leverage x Percent change in sales
Units to be produced =
Expected unit sales + Units in ending inventory (DEI) - Units in beginning inventory (BI)
Purchases =
Direct materials needed for production + Desired direct materials in ending inventory - direct materials in beginning inventory
Cost
The amount of cash or cash equivalent sacrificed for goods and/or services that are expected to bring a current of future benefit to the organization.
Assigning costs
The way that a cost is linked to some cost object.
Cost object
Any item such as a product, customer, department, project, geographic region, plant, and so on, for which costs are measured and assigned.
Direct costs
Costs that can be easily and accurately traced to a cost object.
Indirect costs
Costs that cannot be easily and accurately traced to a cost object.
Allocation
An indirect cost is assigned to a cost object by using a reasonable and convenient method.
Variable cost
One that increases in total as output increases and decreases in total as output decreases.
Fixed cost
Cost that does not increase in total as output increases and does not decrease in total as output decreases.
Opportunity cost
The benefit given up or sacrificed when one alternative is chosen over another.
Products
Goods produced by converting raw materials through the use of labor and indirect manufacturing resources, such as the manufacturing plant, land, and machinery.
Product (manufacturing) costs
Costs, both direct and indirect, of producing a product in a manufacturing firm or of acquiring a product in a merchandising firm and preparing it for sale.
Direct materials
Materials that are a part of the final product and can be directly traced to the goods being produced.
ROI=
Operating income/Average operating assets -or- Margin x Turnover
Average operating assets=
(Beginning operating assets + Ending operating assets)/2
Margin=
Operating income/Sales
Turnover=
Sales/Average operating assets
Residual income=
Operating income - (Minimum rate of return x Average operating assets)
EVA=
After-tax income - (Actual percentage cost of capital x Total capital employed)
Contribution margin per unit of scarce resource=
Contribution margin per unit/Amount of scarce resource to make one unit
Price using markup=
Cost per unit + (Cost per unit x Markup percentage)
Target cost=
Target price - Desired profit