Managerial Accounting Study Guide
Created by Kersten Foulds, Accounting and QA Peer Tutor
Terms you should know:
- Raw Material Inventory
- Work in Process (WIP) Inventory
- Finished Goods inventory
Marginal Cost is the cost of making ONE unit
The Value Chain
Research & Development  Design  Production or Purchases  Marketing 
Distribution  Customer Service
Formulas:
Direct Materials $ + Direct Labor $ + Manufacturing Overhead $ = Inventoriable
product cost $
*MOH includes indirect materials, indirect labor, and other indirect
manufacturing overhead
Prime Costs = Direct Materials + Direct Labor
Conversation Costs = Manufacturing Overhead + Direct Labor
Total Costs = Total Fixed Cost + (Variable cost per unit x # of units)
Average Cost per unit = Total cost/# of units
**Important: the average cost per unit is valid only at ONE level of output;
NEVER use average costs to forecast costs at different output levels
Process Costing vs. Job Costing
Process: used by companies that produce large numbers of identical units in a
continuous fashion; factory/assembly line production
Job: assigns cost to a specific unit or to a small batch of products; companies that
produce products to the customer’s specifications
Steps to Allocating Manufacturing Overhead to Jobs:
1. Allocation base  common denominator that links indirect
manufacturing overhead costs to the cost objects
2. Predetermined MOH rate =
(Total estimated MOH costs)
(Total estimated quantity of the MOH allocation base)
3. MOH allocated to a job = Predetermined MOH rate x Actual quantity of
the allocation base
used by the job
This handout is provided by the CLR.
Equivalent Units  used to express the amount of work done during a period in
terms of fully completed units of output
Activity-Based Costing (ABC)  Focuses on ACTIVITIES as the fundamental
cost objects
Steps:
1. Identify the activities
2. Estimate the total indirect costs associated with each activity
3. Identify the allocation base for each activity’s indirect costs (primary cost
driver)
4. Estimate the quantity of each allocation base
5. Compute the cost allocation rate for each activity:
Activity cost allocation rate =
Estimated total indirect costs of activity
Estimated total quantity of cost allocation base
6. Obtain the actual quantity of each allocation base used by the cost object
7. Allocate the costs to the cost object
Allocated activity costs = activity cost allocation rate x Actual quantity of
cost allocation
based by the cost object
**REMEMBER:
When volume increases then total variable costs increases; fixed cost per unit of
activity decreases
When volume decreases then total variable costs decreases; fixed cost per unit
of activity increases
--Total variable cost (y) = variable cost per unit of activity (v) x volume of activity
(x)
-- Total fixed costs (y) = fixed amount over a period of time (f)
-- Total mixed costs (y) = variable cost component (vx) + fixed cost component (f)
Components of CVP Analysis (Cost-Volume-Profit)
- Sales Price (the price charged for each unit)
- Volume (the # of units sold)
- Variable costs (such as the cost of the units from suppliers)
- Fixed costs (such as the monthly charges/costs)
- Profit/Loss (the operating income provided by the business
*If you are missing one of these components, you can use CVP analysis to
determine that part
Contribution Margin
Sales in Units =
Fixed Expenses + Operating income
Contribution Margin per unit
Regression Analysis (use Excel information – y=b0x+b1)
This handout is provided by the CLR.