Management Accounting Flashcards
Contribution Margin per unit
CM
CM = Selling price - variable costs
Break-even
Units
= fixed costs / CM per unit
Break-even
Sales
= fixed costs / CM ratio
CM Ratio
= CM per unit / Selling Price
Gross Margin
= sales - COGS*
- Both fixed AND variable
Margin of Safety
= expected sales - break-even sales
- Can be either in units or sales
Target level of units
= (fixed costs + target operating income) / CM per unit
- operating income = sales - fixed costs
Margin of Safety %
= (expected units - break-even units) / expected units
How do you calculate Finished Goods?
Beginning balance + COGM - COGS
Prime Costs & Conversion Costs
Prime costs = Direct Materials + Direct Labour
Conversion costs = Direct Labour + MOH
Bundles (Break-Even)
Assumption made that the quantity of each item in the bundle will remain constant
Add together to give you one CM per unit, then carry on with B-E
One B-E is calculated, make sure to break it out to how many of each item that would mean
Service Department Allocation
Direct VS Step VS Reciprocal
Direct - Allocate service costs to all other departments. NOTE: this means that no service costs will be allocated to other service departments
Step - choose one dept. and allocate across. Continue with next dept. NOTE: this means that the second department is not allocated back to the first
Reciprocal - Use a formula to include service costs across ALL departments (uses a percentage of the total)
