Managerial Accounting Essay

2037 words - 8 pages

Managerial accountingFinancial Accounting - Develops in formationFinancial accounting is external for the outside worldGoal is to publish the financial statementsIncome statementBalance sheetCash flowsAccording to the rulesManagerial accounting is internal and stays in the companyNo rules!!!Is usually confidentialIPhoneSales = Units x PriceCost? Plastic Research: - SalariesMetal - Equipment + spaceLabor Market studyShipping AdvertisingBattery Legal FeesDutyMr. Young's story: MedtronicAll product sold in Europe went through the DutchDistribution centerThe price of the product to each "sister" company was the end price to the customer, less 30%.Financial accountingSwitzerland GreeceSales $3,000 $1,200COGS 2,100 840Gross profit 900 360Selling Expenses 600 200Profit 300 160Return on sales 10% 13%Management reportingSwitzerland GreeceSales $3,000 $1,200COGS 1,000 1000Gross profit 2,000 200Selling Expenses 600 200Profit 1,400 0Return on sales 47% 0%Cost behaviorHow costs react to changes in activityCost driver = Something which causes a cost to happen


Cost driver



# Of products labor hours



# Of new products



Target Range
Type of Media
# Of ads



# Of Boxes
Type of transport

2 types of costs1/ Variable costs (VC): Change directly with a change in the level of activity2/ Fixed costs (FC): Does not change with a change in the level of activityVariable Cost /UnitRelevant RangeVC/UnitCost Remains thesameUnitsFixed CostsMove in stepsRelevant RangeCostUnitsAs the level of activity increases

Total Cost

Cost per Unit

Variable costs


No change

Fixed costs

No change


Add a 2nd coke MachineMonthly rental: $200/Month. Fixed costEach can cost: $1.00/can. Variable$ ProfitLossBreakeven point CansPrice: $1.50Calculate breakeven pointStart with unit contribution margin (marginal Income)Sales -Variable cost(Price) (Per unit)$1.50 - $1.00 = $0.50Coke machineMonthly rent $ 200/monthCost of a can $ 1.00/canSales price $ 1.50/canUnit contribution: Price - V.C1.50 - 1.00= $ 0.50B.E.P in units: Fixed costs/unit contribution= 200/0.50=400 cansBreakeven Point in $% Of salesUnits 400Price $ 1.50Sales $ 600 100%V.C $ 400 67%Contribution $ 200 33%MarginF.C $ 200Profit 0Contribution margin % (ratio)Breakeven Point in $ = Fixed Costs / Contribution margin %= 200 / 0.33= $ 600Target Profit = $ 300Target Units = (Fixed Costs + Target Profit) / Unit contributionTarget Units = (200 + 300) / 0.50Target Units = 1000 CansTargets Sale in $ = (Fixed Costs + Target Profit) / Contribution Margin %= (200 + 300) / 0.33= $ 1,500The choice between fixed and variable costsCoke machine Sales price = $ 1.502 optionsMonthly rent = $ 200 Each can costs $ 100Monthly rent = $ 400 Each can costs $ 0.50B.E.P (1) = 200 / 0.50 = 400 cansB.E.P (2) = 400 / 1.00 = 400 cans600 cans(1) (2)Sales $900 $900V.C 600 300F.C 200 400Profit 100 200200...

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