Managerial accounting
Financial Accounting - Develops in formation
Financial accounting is external for the outside world
Goal is to publish the financial statements
Income statement
Balance sheet
Cash flows
According to the rules
Managerial accounting is internal and stays in the company
No rules!!!
Is usually confidential
IPhone
Sales = Units x Price
Cost? Plastic Research: - Salaries
Metal - Equipment + space
Labor Market study
Shipping Advertising
Battery Legal Fees
Duty
Mr. Young's story: Medtronic
All product sold in Europe went through the Dutch
Distribution center
The price of the product to each "sister" company was the end price to the customer, less 30%.
Financial accounting
Switzerland Greece
Sales $3,000 $1,200
COGS 2,100 840
Gross profit 900 360
Selling Expenses 600 200
Profit 300 160
Return on sales 10% 13%
Management reporting
Switzerland Greece
Sales $3,000 $1,200
COGS 1,000 1000
Gross profit 2,000 200
Selling Expenses 600 200
Profit 1,400 0
Return on sales 47% 0%
Cost behavior
How costs react to changes in activity
Cost driver = Something which causes a cost to happen
Activity | Cost | Cost driver |
Production | Labor | # Of products labor hours |
Research | Salaries | # Of new products |
Marketing | Advertising | Target Range Type of Media # Of ads |
Shipping | Transportation | # Of Boxes Type of transport Distance Weight |
2 types of costs
1/ Variable costs (VC): Change directly with a change in the level of activity
2/ Fixed costs (FC): Does not change with a change in the level of activity
Variable Cost /Unit
Relevant Range
VC/Unit
Cost Remains the
same
Units
Fixed Costs
Move in steps
Relevant Range
Cost
Units
As the level of activity increases
Total Cost | Cost per Unit | |
Variable costs | Increase | No change |
Fixed costs | No change | Decrease |
Add a 2nd coke Machine
Monthly rental: $200/Month.
Fixed cost
Each can cost: $1.00/can.