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