Cost Behavior: Analysis and Use
Managerial Accounting and
the Business Environment
Chapter 1 - Learning Objectives
LO1 Describe the functions performed by managers.
LO2 Identify the major differences and similarities
between financial and managerial accounting.
LO3 Describe th
Relevant Costs for Decision Making
Chapter 12 Learning Objectives
LO1 Distinguish between relevant and irrelevant costs in
LO2 Prepare analyses for various decision situations.
LO3 Determine the most profitable use of a constra
in final exam
Chapter 8 Learning Objectives
LO1 Identify how variable costing differs from
absorption costing, and compute unit product costs
under each method.
LO2 Prepare income statements using both variable and
Chapter 9 Learning Objectives
LO1 Explain why organizations budget, and
describe the processes they use to create budgets.
LO2 Prepare the supporting components of a master
budget and the budgeted financial statements.
LO3 Describe var
Cost Behaviour: Analysis and Use
Chapter 3 - Learning Objectives
LO1 Describe how fixed and variable costs behave and how to use
them to predict costs.
LO2 Analyze mixed costs using various approaches.
LO3 Prepare an income statement using the c
Bad debts expense
Direct labour cost
Direct materials used
Heat, light, and power for factory
1 Using wood to manufacture a table.
2 Drilling a hole in a product.
3 Paying a franchise license fee.
4 Transferring a production run to the warehouse.
5 Setting up a printer to run 5,000 copies of a textbook.
Cost Behaviour: Analysis and
The Activity Base
of aa variable
Activity Based Costing (ABC)
ABC is designed to provide managers with
cost information for strategic and other
decisions that potentially affect capacity and
therefore affect fixed as well as variable c
Job Order Costing
You can ignore:
Use of Information Technology - Pages 95
International Job Costing Pages 97 98
Types of Product Costing
Relevant Costs for Decision
Tactical Decision Making
Choosing among alternatives with an
immediate or limited end in view.
Conversely strategic decision making
choosing among alternative strategies with
the goal of establishing a
University of Alberta
School of Business
Department of Accounting, Operations & Information Systems
ACCTG 322 Introduction to Accounting for Management Decision Making
Dr. Naomi Rothenberg
Bus 3 - 21F
An allocated portion of fixed manufacturing overhead is
included in product costs under:
What factor is the cause of the difference between net income
as computed under abso
1. & 2.
Preventive maintenance is performed on general-purpose
Products are assembled by
Reminder notices are sent to
customers who are late in making payments.
Purchase orders ar
1. Research & Documents predetermined overhead rate:
Estimated total overhead cost
overhead rate Estimated total amount of the allocation base
=$35 per hour
Litigation predetermined overhead rate:
1. High-low method:
High activity level.
Low activity level .
Variable cost per unit =
Number of Ingots
Change in cost
Change in activity
= $40 per ingot
Plastic washers used to assemble autos* .
Production superintendents salary .
Wages of workers who assemble a product .
Electricity to run production equipment .
Final Review - Formulas You Must Know
Calculate Cost of Goods Manufactured:
Beginning Raw Materials Inventory
+ Purchases of Raw Materials
- Ending Raw Materials Inventory
= Materials Used in Production
+ Direct Labor
+ Manufacturing Overhead (list all co
Chapters 1, 2, 3, 5, & 6 7
Product Costs: all costs that are required to make a product
Direct Material, Direct Labor, Manufacturing Overhead
Reported as inventory (inventoriable) on the balance sheet until sold
When sold these costs become co
Short Term Decisions
Relevant Costs differs between alternatives: avoidable, differential
incremental, added fixed, opportunity
Irrelevant Cost the same for all alternatives - ignore these
When making a decision, you should do the following:
Terms and Definitions:
Static Budget prepared at the beginning of the period, valid only for one planned
of activity. The activity would be either sales volume or units
Flexible Budget provides estimates for what costs should be
Quick Study Guide
Segment Reporting and Performance Management
Centralized Organization: Executive management make all decisions
Decentralized Organization: Decisions made at many levels of management
Segments part or activity of the business where revenu
CHAPTER 8: VARIABLE COSTING
Absorption Costing (also called Full Costing) includes all product costs as inventory costs direct
materials, direct labor, variable manufacturing overhead and fixed manufacturing overhead, in
accordance with GAAP
CHAPTER 7: CVP
Contribution Margin sales revenue less all variable costs
It is the amount available to cover fixed costs and give profit
Less ALL Variable Costs
Less ALL Fixed Costs
Net Operating Income/Loss
Sales, variable costs