Managerial accounting

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

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. Variable

$ Profit

Loss

Breakeven point Cans

Price: $1.50

Calculate breakeven point

➢ Start with unit contribution margin (marginal Income)

Sales –Variable cost

(Price) (Per unit)

$1.50 - $1.00 = $0.50

Coke machine

Monthly rent $ 200/month

Cost of a can $ 1.00/can

Sales price $ 1.50/can

Unit contribution: Price – V.C

1.50 – 1.00

= $ 0.50

B.E.P in units: Fixed costs/unit contribution

= 200/0.50

=400 cans

Breakeven Point in $

% Of sales

Units 400

Price $ 1.50

Sales $

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