Cost and management accounting
How managers use cost information to decide. These lessons sort costs by how they behave, find the sales a business needs to break even, measure how sensitive profit is to sales, work out what a product really costs, compare options by their relevant costs, and set budgets and explain the variances from them.
A fictional bicycle maker carries the mechanics so every number can be checked. Apple's and Microsoft's reported accounts then show the same ideas on real statements, including where the estimates run out.
6 lessons, about 2 hours 17 minutes of reading in all. Start at the top and go in order.
After this module you will be able to
- sort costs as fixed, variable or mixed and as direct, indirect, product or period
- find a break-even point and the sales needed for a target profit
- measure operating leverage and read it in real companies
- allocate overhead to products and compare absorption, variable and activity-based costing
- choose between options by their relevant costs
- build a flexible budget and explain variances from standard
The lessons
- Fixed, variable and mixed costsHow fixed, variable and mixed costs behave, how to classify costs and estimate their behaviour, with a live calculator and Apple and Microsoft's accounts.
- Contribution margin and break-evenContribution margin, break-even point, target profit and margin of safety, worked on a bicycle maker with a live calculator and Apple and Microsoft's accounts.
- Operating leverageWhat operating leverage is, how fixed costs magnify profit swings, and how to calculate it, with a live calculator and Apple and Microsoft's results.
- Product costing methodsHow overhead is assigned to products: absorption, variable and activity-based costing, with a live calculator and Apple and Microsoft's inventory.
- Relevant costs and decisionsHow to decide with relevant costs: special orders, make or buy and scarce resources, with a live calculator and Apple and Microsoft's capital spending.
- Budgets and variancesHow budgets, flexible budgets and standard costs work, and how to calculate price and usage variances, with a live calculator and Apple and Microsoft's costs.