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Chapters 1-4 VOCAB/NOTES

Managerial accounting- the generation of relevant information to support

managements decision making

Budget-lays out the plan in financial terms that

Just in time inventory-an inventory strategy which focuses on reducing waste and

efficiency by ordering goods so that they arrive just when needed

Variable Cost-Cost per unit remains constant, regardless of activity. Total cost varies

in proportion to change in level of activity

Fixed Cost- total cost remains fixed regardless of activity. Cost per unit varies

indirectly with level of activity

Discretionary fixed cost- fixed cost that can be changed in the short run

Committed fixed cost- fixed cost that cannot be changed in the short run

Step cost-cost that is fixed over a small range of activity

Contribution margin ratio- CM/Sales revenue or CM per unit/sales price per unit

Breakeven point-level of sales at which sales revenue= total expenses; profit is zero

Breakeven point in units-total fixed expenses/CM per unit

Breakeven point in sales dollars-total fixed expenses/ CM ratio

Breakeven point in units (target income)- (total fixed expenses+target operating

income)/CM per unit

Breakeven point in sales dollars (target operating income)-(total fixed

expenses+target operating income)/CM ratio

Operating Income- revenue-expenses

Variable cost ratio-variable cost/sales revenue

Variable cost ratio+contribution margin ratio=1

Markup-the difference between the cost of a product/service and the price that a

company charges for it. (sales price-cost per unit)/cost per unit=markup percentage

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Product cost-any cost that a company incurs to acquire raw materials and convert

them into finished goods ready for sale

Direct materials-materials that can be directly traced to the final product

Direct labor-wages paid to the workers who directly transform direct materials intofinal goods

Overhead-indirect product costs that arise in the manufacturing process and cannot

be easily traced to a unit of product

Indirect materials-supplies that support the production process

Indirect labor-labor of workers who support the production process

Period costs-costs that are associated with the selling of products and the

administration of business

Selling costs- costs associated with the storage, sale and delivery of finished goods

Job-order costing system-system in which products are manufactured in batches or

jobs and products costs are accumulated for each batch or job

Overhead Manufacturing Overhead- actual>applied

Under: applied>actual

Contribution Margin-gross revenue (sales-COGS)-Variable Expenses