Womack Report

September 11, 2007

Managerial Accounting, September 11

Filed under: Accounting,Notes,School — Phillip Womack @ 4:52 pm

Getting started up again in accounting. Computer is acting flaky. May be time for a reformat soon. Going to have to get a working CD-ROM for that first. And need to get a cash influx before I can get a CD-ROM. Life is like that, sometimes.

Chapter 5 and 6 tonight. Next class will be test 1, over everything covered so far.

Variable Cost Behavior

Most costs can be described as fixed, variable, or mixed. A variable cost is constant on a per-unit basis. A fixed cost is independent of per-unit calculations.

Fixed costs can be divided into committed fixed costs and discretionary fixed costs. Committed fixed costs are nearly impossible to change in the short term; this includes plant and equipment investments, depreciation, and the salaries of key personnel. Discretionary fixed costs can be changed in the short term, but are not linked to production or sales on a per-unit basis; this includes advertising, training programs, research, and so forth.

Mixed costs have both fixed and variable cost components.

When dealing with mixed costs, one must often break the costs into fixed and variable components. Generally, the costs can be graphed in y= mx+b form, where total costs are equal to per-unit costs multiplied by units sold/produced, and then added to fixed costs. B, then, is the fixed cost amount. Most methods of determining the variable portion of the costs work out to finding the variable cost per unit, and using that information to determine the y-intercept of the line which is the fixed costs.

Cost-Volume-Profit Analysis is concerned with the effects on net income of selling prices, sales volume, unit variable costs, total fixed costs, and the mix of products sold.

Contribution Margin is the amount that sales of a product contributes toward covering fixed expenses and generating profits. Unit contribution margin remains constant so long as the selling price and unit variable cost do not change. Contribution margins are very useful in CVP analysis because they show cost behavior. When total contribution margin equal total fixed expenses, the company breaks even.

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