Chapter 1: The Meaning and Objectives of Managerial Accounting

Managerial Accounting is the provision of accounting information for a company’s internal users.
1. To provide information for planning the organization’s actions and for directing and motivating
people
2. _____________________ controlling the organization’s actions.
3. _____________________ making effective decisions
 

 
Work of Management
Planning - Directing and Motivating – Controlling - Decision Making

Ethical behavior involves choosing actions that are right, proper and just.
Institute of Management Accountants (IMA)
Competence
 Follow applicable laws, regulations and standards.
 Maintain professional competence.
 Prepare complete and clear reports after appropriate analysis.
Confidentiality
 Do not disclose confidential information unless legally obligated to do so.
 Do not use confidential information for personal advantage.
 Ensure that subordinates do not disclose confidential information.
Integrity
 Avoid conflicts of interest and advise others of potential conflicts.
 Refrain from activities that could discredit the profession
 Avoid activities that could affect your ability to perform duties.
Credibility
 Communicate information fairly and objectively.
 Disclose all information that might be useful to management.
 
Chapter 2 – Cost concepts
Cost: the amount of cash or cash equivalent sacrificed for goods and/or services that are expected to
bring a current or future benefit to the organization
Manufacturing Costs - Product costs
1. Direct Materials
2. Direct Labor
3. Manufacturing Overhead (Indirect materials, indirect labor, others)
Nonmanufacturing - Period costs
1. Selling Costs
2. Administrative Costs
 

 
 

 
 

 
Least-Squares Regression Method
A method used to analyze mixed costs if a scatter graph plot reveals an approximately linear relationship
between the X and Y variables.
This method uses all of the data points to estimate the fixed and variable cost components of a mixed
cost.
The goal of this method is to fit a straight line to the data that minimizes the sum of the squared errors.
 
Opportunity Cost The potential benefit that is given up when one alternative is selected over another.
Sunk costs have already been incurred and cannot be changed now or in the future. These costs should
be ignored when making decisions.
Chapter 4: Cost-Volume-Profit Relationships
CM (contribution margin)
CM per unit = Selling price – Variable costs per unit
Profit = CM per unit * units – Fixed expenses

CM ratio = CM(per unit)/ Selling price (per unit)

= (Selling price – Variable costs per unit) / Selling price (per unit)

Target profit:
- Unit sales = (target +fixed) / CM per unit
= (target +fixed) / (Selling price – Variable costs per unit)
- Dollar sales = (target +fixed) / CM ratio
= (target +fixed) / ((Contribution margin (per unit):Selling price (per unit))

Break even:
- Unit sales = fixed / CM per unit
= fixed / (Selling price – Variable costs per unit)

- Dollar sales = fixed / CM ratio

= fixed / ((Contribution margin (per unit):Selling price (per unit))

Margin of safety = total sales – break even sales

Margin of safety percentage = Margin of safety/total sales

Operating leverage (DOL) = Contribution margin/Net operating income

 With an operating leverage of 5, if the comp increases its sales by 10%, net operating income
would increase by 50%.
 
High Operating Leverage ratio (negative)
- means high fixed costs.
- increase risk of making loss in adverse market conditions.
- increases opportunity to make profit when higher demand exists.
- has lower margin of safety percentage (DOL = 1/MoS)

Chapter 5 - Variable Costing: A Tool for Management

Chapter 11 – Flexible Budgets and Performance Analysis
Chapter 12 – Standard costs and variances
Materials price variance MPV = AQ (AP - SP)

Materials quantity variance MQV = SP (AQ - SQ)

Chapter 13: Performance Measurement in Decentralized Organizations

Responsibility Center:

 Cost Center

 Profit Center (control over both costs and revenues)

 Investment Center (control over costs, revenues, and investments)

Return on Investment (ROI) = Net operating income / Average operating assets

= Margin x Turnover

 Margin = Net operating income / Sales

 Turnover = Sales / Average operating assets

Residual income = Net operating income – (Average operating assets  Minimum required rate of
return)

- cannot be used to compare the performance of divisions of different sizes

Manufacturing Cycle Efficiency = Value-added time / Manufacturing cycle time

The Balanced Scorecard

Performance measures

 Financial

 Customer

 Internal Business Processes

 Learning & Growth

Chapter 14 – Differential Analysis

Make or Buy decision

Special Orders

Utilization of a Constrained Resource