Variable Costs
Costs that vary in total directly and proportionately with changes in the activity level
Fixed Costs
Costs that remain the same in total regardless of changes in the activity level
Mixed Costs
have properties of both fixed and variable costs due to presence of both variable and fixed components in them
Contribution Margin
The amount of revenue remaining after deducting variable costs
Cost Behavior
The study of how specific costs respond to changes in the level of business activity
Relevant Range
The range of the activity index over which the company expects to operate during the year
Contribution Margin Ratio
contribution margin per unit / unit selling price
Contribution margin
unit selling price - unit variable costs = contribution margin per unit
Break Even Point in Units
fixed costs / contribution margin per unit
Break Even Point in Dollars
fixed costs / contribution margin ratio
Required Sales
variable costs + fixed costs + target net income
Variable cost per unit
change in total costs / high minus low activity level
Weighted average contribution margin ratio
(contribution margin ratio
sales mix percentage) + (contribution margin ratio
sales mix percentage)
Required sales in Dollars
(fixed costs + target net income) / contribution margin ratio
Required Sales in Units
fixed costs + target net income / contribution margin per unit
Margin of Safety in Dollars
actual (expected) sales - break even sales
Margin of Safety Ratio
margin of safety in dollars / actual (expected) sales
Breakeven units and sales units
Can be expressed in either sales units or sales dollars, this occurs where total sales equal variable costs plus fixed costs
Sales
variable costs + fixed costs + net income
Degree of Operating Leverage
contribution margin / net income
Concept of Budgetary Control
The use of budgets to control operations
Static Budgets
A projection of budget data at one level of activity
Flexible Budgets
A projection of budget data for various levels of activity
Favorable Differences
When your answer is negative
Unfavorable Differences
When your answer is positive
Relevant Range
Usually used in describing fixed costs. Costs are fixed only within a reasonable range of activity
The Need for Standards
Predetermined costs, and both contribute to management planning and control
Standard Costs
A unit amount. Predetermined unit cost which companies use as measures of performance
Budgets
The total amount of all costs combined
Ideal Standards
Represents optimum levels of performance under perfect operating conditions
Normal Standards
Represents efficient levels of performance that are attainable under expected operation conditions
Setting Standard Costs per Unit
After a company has established the standard quantity and price per unit of product this can be determined
Variance
The differences between total actual costs and totals standard costs
Managerial accounting
a field of accounting that provides economic and financial information for managers and other internal users
cost of good sold formula
beginning work in process inventory + total manufacturing costs = total cost of work in process
total cost of work in process - ending work in process inventory = cost of goods manufactured
product costs
costs that are a necessary and integral part of producing the finished product
Direct materials
raw materials that can be physically and directly associated with converting raw materials into finished goods
Direct labor
the work of factory employees that can be physically and directly associated with converting raw materials into finished goods
Manufacturing overhead
costs that are indirectly associated with the manufacture of the finished product.
Period costs
costs that are matched with the revenue of a specific time period and charged to expense as incurred
Product costs
costs that are a necessary and integral part of producing the finished product.
Predetermined MOH 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
overapplied MOH
a situation in which overhead assigned to work in process is greater than the overhead incurred
underapplied overhead
a situation in which overhead assigned to work in process is less than the overhead incurred
actual moh vs applied mph
actual is greater than applied, manufacturing overhead is under applied-actual is less than applied, manufacturing overhead is over applied
normal balances
dead - debit expense assets dividends
curls common stock unearned rev revenue liability stock holders equity
Total budgeted costs
fixed costs + variable costs ( total variable cost per unit of activity * activity level )
return on investment
controllable margin / average operating assets
Total material variance (DM)
Actual quantity
actual price - Standard quantity
standard price
Material price variance
actual quantity
actual price - Actual quantity
standard price
Material quantity variance
Actual quantity
standard price - standard quantity
standard price
Total labor variance
actual hours
actual rate - standard hours
standard rate
labor price variance
actual hours
actual rate - actual hours
standard rate
labor quantity variance
actual hours
standard rate - standard hours
standard rate
Total overhead variance
actual overhead - overhead applied ( based on the standard hours allowed)
Overhead controllable variance
actual overhead - overhead budgeted