Managerial Accounting Principles and Formulas Quiz

Direct materials, like raw materials, vary with the level of production and are considered a variable cost in business.

Utilities, such as rent or lease payments, remain constant regardless of production levels, making them a fixed cost in business operations.

Period costs, like advertising expenses, are not tied to production and are expensed in the period incurred rather than being allocated to products.

Contribution margin is the difference between total sales and total variable costs, representing the amount available to cover fixed costs and contribute to profit.

Net income is the difference between total revenue and total expenses, reflecting the overall profitability of a business.

Absorption costing allocates both variable and fixed manufacturing costs to the cost of a product, providing a comprehensive cost perspective.

Managerial accounting focuses on future-oriented and forward-looking information to aid in decision-making and planning.

All mentioned costs – fixed, variable, and mixed – are considered in the relevant range for cost behavior analysis, which examines how costs change with production or activity levels.

Job costing tracks the costs associated with a specific job, order, or project separately, providing detailed cost information for individual projects.

Contribution margin ratio is the percentage of total sales that represents the contribution margin, calculated as (Total Sales - Total Variable Costs) / Total Sales.

Contribution margin per unit is the difference between the selling price per unit and the variable cost per unit, representing the contribution to covering fixed costs and generating profit.

The break-even point in units is reached when total revenue equals total costs, and this formula helps determine the number of units needed to cover fixed costs.

The predetermined overhead rate is calculated by dividing estimated total manufacturing overhead by the estimated total allocation base in traditional costing.

Return on Investment (ROI) is calculated as the percentage of net income relative to total assets, reflecting the profitability of invested capital.

Contribution margin ratio is calculated as the percentage of contribution margin relative to total sales, expressing the contribution margin's proportion in the revenue.