Cost Accounting: Introduction to Management Accounting

Cost drivers are key when looking at cost behaviour. There are different cost drivers that can be chosen for different costs; however, there normally is one cost driver than determines cost better than the others--This can be found by analyzing the coefficient of determination.

Join us as we talk about chocolate bars and cost drivers!

In this tutorial we'll distinguish variable costs from fixed costs.  I'll go over the fundamental idea of both types of costs and how they change based on cost driver activity.  We'll graph out some variable and fixed costs to see how they change on a per-unit and total cost basis. 

The following is an illustrative example between variable and fixed costs. 

One of the most common questions I'm asked about is the Relevant Range. The Relevant Range is a range of activity where there is a specific relationship between costs and cost drivers. Join me as I illustrate this bewildering topic in a matter of minutes!

Mixed costs contain elements of both fixed and variable costs. Learn about them, how to graph them, examples of mixed costs and more!

Cost functions help us understand cost behavior and how to project costs. We cover the components of a cost function and show the relationship between cost drivers and total cost. Remember that even though a cost function can have a fixed and variable component it can be solely fixed or variable also!  

In order to create our cost function we need to calculate the slope. The slope is  known as rise over run or variable cost in our cost function. We go over calculating the slope for a set of data and explain how to use slope to find our missing value, the fixed cost or Y-intercept! 

The high-low activity method provides us with slope using high and low activity points. We go through a quick example and cover the disadvantages to the method, along with some added detail regarding the relevant range. 

The least squares regression method will allow us to construct a cost function using all of the data points. We'll see that the method also yields the coefficient of determination which demonstrates the correlation between our cost and cost driver. Learn more by watching this video!

Last time we constructed our cost function using the least squares regression method. In this presentation we'll go over regression output from a graphing calculator. Learn about the coefficient of determination, or the r^2 value and how to interpret it.

Cost-volume-profit (CVP) analysis is used to evaluate how changes in costs and volume affect a company's operating income and net income.We'll go over the basics of CVP analysis and explain how to use the break even point equation to solve for some general managerial accounting questions!

We've gone over the basic concept of cost-volume-profit analysis in the last tutorial, now we can actually find a break-even point using basic algebra. Understand how to set up and solve for a break-even point along with all of the mechanics. 

We go over some equations that are brought up within the CVP (cost-volume profit) chapter like how to calculate break even points for units and total dollars. I explain what the contribution margin is and also show how it applies to break even points. 

The contribution margin and gross margin are very similar. In this tutorial we'll differentiate between both and provide some examples to quickly remember which is which! 

The margin of safety is the difference between planned sales and our break-even point. Learn how to calculate the margin of safety in this quick tutorial!

A sales mix can affect the way we set up our break-even point equation. What if we're selling 2x the amount of books to magazines? 3x? 4x? In this tutorial, we'll weight the break even equation in a 4:1 ratio and figure out how many books to magazines we'll need to break even. We'll also show you how to confirm that you've calculated the right figure!

Both planned profit and tax can affect break-even points. In this tutorial we'll cover how to adjust our break-even equation to solve for the break-even point, when tax and profit is factored in. 

Financial Leverage can be a tricky topic. We'll try and help you understand it by demonstrating the most common way to leverage an investment or company (through debt) and showing the risks and rewards associated with it. 

Now we know that leverage magnifies both profits and losses. Let's see how leverage has an impact on a business I used to run as a teenager. Operating leverage will be discussed here and we'll talk about the degree of operating leverage in the next tutorial!

We expand on how leverage affects the operation of a business (from a managerial perspective). Learn what the degree of operating leverage is, along with how to calculate and use it. We'll see how sensitive income is to sales.

Direct costs are always able to be traced to a cost object. Indirect costs on the other hand cannot be traced and have to be allocated in order to distribute the cost. Join us as we go through some quick examples to understand the difference between direct and indirect costs!

Costs can be split up into manufacturing and non-manufacturing costs. We'll look over certain direct and indirect costs and decide how they should be categorized. This tutorial will come in handy when we begin to prepare Cost of Goods Manufactured Statements!

Inventory can be classified as three different sub-accounts called raw materials, work in process, and finished goods. Join us as we go through each account and explain how they're used. 

The Cost of Goods Manufactured Statement categorizes costs as direct materials, direct labor, manufacturing overhead and changes in work in process. Cost of goods manufactured will ultimately be added to finished goods and expensed as cost of goods sold. Join us as we go through the sections of a COGM statement.

After going over the Cost of Goods Manufactured Statement we'll learn how to record journal entries for the usage of direct materials, incurring direct labor and overhead costs, along with transferring inventories. Overhead applied and overhead incurred are tricky, so pay attention specifically to that part!

The predetermined overhead rate is used to determine how much overhead is applied to a product or job. In order to determine the rate we'll need to use an allocation base like direct labor hours, direct labor total $'s, or machine hours. How will we know which one to use?? I also explain the difference between actual and normal costing in this tutorial.

Within a normal costing system we'll typically have an over or under-applied amount of overhead. This means that the budgeted overhead is different from the actual. Learn how to adjust for the difference and how to journalize it using the write off or proration method.

In this lesson we'll look at the differences between job-order costing and process costing. We'll also see how costs flow through both job-order and process costing systems and record transfers between inventory accounts.

In this tutorial I wanted to provide a general overview of the production report, and cover the steps in which to complete one (Physical flow schedule, calculating equivalent units and cost per equivalent unit, valuation of cost of goods transferred out and EWIP, along with cost reconciliation).

In this lesson I'll be preparing a production report using the weighted-average method. Make use of the template I provided and follow along as we complete the physical flow schedule, the number of equivalent units, cost per equivalent unit, COG completed/transferred out and a cost reconciliation.

In this lesson I'll be creating a production report using an example problem, but this time, I'll be using the FIFO method. The FIFO method will affect our equivalent units, cost per equivalent unit as well as our cost of goods transferred out and EWIP account. It's a complicated method for process costing, but it should be learned as a CPA concept.

Activity based costing (ABC) systems provide a way of splitting overhead costs into different overhead activities. The costs are then allocated to products or projects proportionally by their cost driver activity levels. Join us as we go through an example to explain ABC costing.

Explanations for the Activity Based Costing Quiz.

This Managerial Accounting tutorial explores the difference between absorption and contribution income statement approaches. 

Absorption costs can be separated into two types of costs: inventoriable and non-inventoriable costs. They can also be thought of as manufacturing or non-manufacturing costs. 

Contribution costing separates all costs into either a variable or fixed cost. Watch as we breeze through a comparison of both types of income statements.

Support departments are departments that incur costs (no revenues) and that normally serve revenue producing departments. Examples of such support departments are HR, Accounting, Legal and Security. In the next video we'll look at how to allocate the costs of support departments to revenue departments using the direct, step-down or reciprocal method.

In this tutorial we'll use the direct method to allocate support department (service department) costs to revenue producing departments. The direct method completely ignores that support departments assist other support departments. This is the reason why we don't prorate the cost using any of the cost driver data from support departments. We'll cover the step-down and reciprocal method next. 

In this tutorial we'll use the Step-Down Method to allocate costs from support departments to revenue producing departments. Remember that the ultimate goal is to allocate all support costs to revenue producing departments.

The support department with the highest percentage is allocated first. All of its costs are allocated out — whether to an operating department or to another support department. After that, the support department with the second-highest percentage is allocated. Step by step, the costs for each support department are fully allocated.

In this tutorial we discuss allocating support department costs to revenue producing departments using the reciprocal method. The reciprocal method is used when support departments provide services to each other, along with revenue producing departments.

We will use substitution algebra to allocate costs to the revenue producing departments and clear out cost balances in the support departments.

In this tutorial I'll discuss how we can allocate joint costs using the physical units method. We will prorate the joint costs to the separate joint products for the purpose of valuing our inventory and determining income from each product. We need a method that allocates costs so that each product has a fair allocation of cost and yields a profit.

The Master Budget begins our chapter on budgets for an organization/company. Don't worry, the name sounds scarier than the actual content. Let us guide you through the explanation of Master Budgets.

Cash Flow Statements weren't that tough right? Let's talk about Cash Budgets. Join us as we go through a Cash Budget example which requires us to prepare a sales and collection budget. Get those receipts in!

As we slowly construct our Cash Budget, we turn our attention to cash disbursements. Join us as we calculate Cost of Goods Sold and find out how much we're exactly spending on inventory purchases.

We'll be preparing an operating expense budget in this tutorial. Very short video, separating cash and non-cash expenses so that we can move on to the capital purchases and financing section of our cash budget. Enjoy :)