MGT11B Final Review Outline
WQ2021
Page 1 of 10

Management 11B Outline
Chapter 1 – Managerial Accounting and Cost Concepts
 Direct v. Indirect Costs
o Direct Costs –

o Indirect Costs –

 Product v. Period Costs
o Product Costs –

o Period Costs –

 Variable v. Fixed Costs
o Variable Costs –

o Fixed Costs –

Example
A company’s relevant range of production is 1,000 units to 3,000 units. The company
uses an absorption costing method. When it produces and sells 2,000 units, its average
costs per unit are as follows:
Average Cost Per Unit
Direct Materials \$8
Direct Labor \$7
Variable Manufacturing Overhead \$6
Fixed Manufacturing Overhead \$5
Fixed Selling Expense \$4
Fixed Administrative Expense \$3
Sales Commission \$2
Variable Administrative Expense \$1
What is the total amount of period costs incurred to make 3,000 units?

MGT11B Final Review Outline
WQ2021
Page 2 of 10

Chapter 2 – Job-Order Costing
 Job-order costing is a type of absorption costing system
o Unit costs are computed by job on the job cost sheet
 Job-order costing systems are used when:

 Use a Predetermined Overhead Rate to apply overhead to jobs because the
actual overhead for the period is not known until the end of the period

 Assign Predetermined Overhead Rate to product costs

 Total Manufacturing Cost =
Example
A company has two manufacturing departments – Dep’t 1 and Dep’t 2. It has started
and completed only one job for the month. The following information is available for
the company as a whole and for the job.
Dep’t 1 Dep’t 2 Total
Estimated Total Machine-Hours Used 1000 2000 3000
Per Machine-Hour
\$10 \$20

Job
Direct Materials \$5000
Direct Labor Cost \$4000
Actual Machine Hours Used
Dep’t 1 800
Dep’t 2 2300
Total 3100
Calculate the Manufacturing Overhead applied to the Job.

MGT11B Final Review Outline
WQ2021
Page 3 of 10

Chapter 3 – Job-Order Costing: Cost Flows and External Reporting
 Product costs flow through three inventory accounts on the Balance Sheet until
they are sold, at which point they move to the Cost of Goods Sold on the
Income Statement

 Cost of Goods sold – includes the manufacturing costs associated with the
goods that were sold during the period

 At the end of the period, we need to close out any underapplied or
overapplied Manufacturing Overhead to the Cost of Goods Sold because the
estimated manufacturing overhead applied (amount calculated using the
POHR) will almost never equal the actual manufacturing overhead paid during
a period (amount calculated by adding receipts for manufacturing overhead
paid during the period)
Example
ABC Company’s Work in Process account has an inventory balance of \$50,000 on
January 1. The company used Raw Materials in the amount of \$500,000 during the
month, 475,000 of which were direct materials, and 25,000 of which were indirect
materials. The company spent \$350,000 on direct labor, 100,000 on indirect labor, and
\$150,000 on administrative salaries. The company’s accountant calculated the
applied manufacturing overhead to be \$300,000, and the actual manufacturing
overhead for the month was \$325,000. Jobs costing \$750,000 to manufacture
according to their job sheets were completed during the month.
1. Calculate the amount of manufacturing overhead that is overapplied or
underapplied.

2. What is the ending balance in Work in Process?

MGT11B Final Review Outline
WQ2021
Page 4 of 10

Chapter 4 Process Costing
 Process Costing is a type of absorption costing system

 Process Costing is used when:

 One product may go through multiple processing departments, which are units
within an organization where materials, labor, or overhead are added to the
product. Each has a separate Work in Process accounts.
o We consolidate costs into Materials Costs and Conversion Costs, with
Conversion Costs = direct labor and manufacturing overhead costs
 Because we’re making identical products that may not be fully completed, we
calculate Equivalent Units in order to determine how much cost is in each
department at the end of the reporting period
 Steps of Process Costing
1. Compute the Equivalent Units of Production

2. Compute the Cost Per Equivalent Unit

3. Assign Costs to Units

Example
Work in Process Inventory, January 1 500 units
January 1 Conversion Completed 90%
Work in Process Inventory, January 31 1000 units
January 31 Conversion Completed 75%
Units Transferred to Finished Goods 750
Total Cost – Materials \$100,000
Total Cost – Conversion \$75,000
Compute the equivalent units of production for conversion.

MGT11B Final Review Outline
WQ2021
Page 5 of 10

Chapter 5 Cost-Volume-Profit Relationships
 Use Contribution Margin Income Statement to judge the impact on profits of
changes in selling price, cost, or volume
 Contribution Margin =
o Contribution Margin is first used to cover fixed expenses and any
remaining amount contributes to the net operating income
 Unit Sales to Break-Even or Make Desired Profit

 Dollar Sales to Break-Even or Make Desired Profit

 =
Assume that ABC Company uses absorption costing. ABC Company’s relevant range
of production is 1,000 units to 3,000 units. The selling price per unit is \$45. When it
produces and sells 2,000 units, its average costs per unit are as follows:
Average Cost Per Unit
Direct Materials \$8
Direct Labor \$7
Variable Manufacturing Overhead \$6
Fixed Manufacturing Overhead \$5
Fixed Selling Expense \$4
Fixed Administrative Expense \$3
Sales Commission \$2
Variable Administrative Expense \$1
ABC Company is anticipating selling 2,500 units. What would be the profit impact if it
spends \$2 more per unit in direct materials and was thereby able to increase sales to
2,700 units?

MGT11B Final Review Outline
WQ2021
Page 6 of 10

Chapter 6 Variable Costing and Segment Reporting
 Variable Costing is used for internal decision making
o By contrast, absorption costing is used for external reporting (required by
GAAP)

 The primary difference between Variable Costing and Absorption Costing is how
they treat fixed manufacturing overhead.
 Because Variable Costing treats fixed manufacturing overhead as a period cost
that is expensed on the income statement in the period in which the cost was
incurred, the net operating income for Variable Costing will be different from the
net operating income for Absorption Costing when the number of units
produced varies from the number of units sold (i.e. when inventory amounts
change)
o When there is no change in inventory (# units produced = # units sold),
Absorption Costing Net Operating Income = Variable Costing Net
Operating Income
o When the inventory increases (# units produced > # units sold), Absorption
Costing Net Operating Income > Variable Costing Net Operating Income

o When the inventory decreases (# units produced < # units sold),
Absorption Costing Net Operating Income < Variable Costing Net
Operating Income

 Segment Margin = Segment Sales – Segment Variable Expenses – Traceable
Fixed Costs
o Traceable Fixed Costs are those that would disappear over time if the
segment itself disappeared
MGT11B Final Review Outline
WQ2021
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o Common fixed costs, those that arise because of the overall operation of
the company, are not included for any segments
Example
ABC Company’s product costs are as follows:
Average Cost Per Unit
Direct Materials \$8
Direct Labor \$7
Variable Manufacturing Overhead \$6
Fixed Manufacturing Overhead \$5
If ABC Company produces 2,500 units and sells 2,000 units, calculate the difference
between Variable Costing Net Operating Income and Absorption Costing Net
Operating Income.

MGT11B Final Review Outline
WQ2021
Page 8 of 10

Chapter 8 Master Budgeting
 Budget – detailed quantitative plan for acquiring and using financial and other
resources over a specified forthcoming time period
 Commonly used equations
o Total Budgeted Sales =

o Required Production =

o Total Direct Labor Costs =

o Ending Finished Goods Inventory =

o Ending Cash Balance =
Example
Budgeted Unit Sales for February 4,000 units
Budgeted Unit Sales for March 5,000 units
Budgeted Unit Sales for April 10,000 units
Desired Ending Finished Goods
Inventory
10% of the following
month’s unit sales
Direct Labor Time per unit 30 min.
Hourly Wage \$20/hr
Cash collected from Sales in March \$100,000
Projected Cash available on March 1 \$20,000
Cash disbursements in March \$75,000
Interest received during March \$1,000
Loan payments made during March \$4,000
Selling Price \$40/unit
Calculate the required production for March.

MGT11B Final Review Outline
WQ2021
Page 9 of 10

Chapter 9 Flexible Budgets and Performance Analysis
 Flexible budgets adjust to show what costs should be for the actual level of
activity
 Variances are calculated to evaluate and improve performance
o Activity Variance –

o Revenue Variance –

o Spending Variance –

o Variances are favorable when:
 Actual Revenue Flexible Budget Revenue
 Flexible Budget Revenue Planned Budget Revenue
 Actual Costs Flexible Budget Costs
 Flexible Budget Costs Planned Budget Costs
o Variances are unfavorable when:
 Actual Revenue Flexible Budget Revenue
 Flexible Budget Revenue Planned Budget Revenue
 Actual Costs Flexible Budget Costs
 Flexible Budget Costs Planned Budget Costs
Actual Results Flexible Budget Planned Budget
Revenue \$225,000 \$215,000 \$235,000
Wages & Salaries \$115,000 \$125,000 \$110,000
Parts & Supplies \$60,000 \$55,000 \$51,000
Administrative Expenses \$6,000 \$8,000 \$11,000
Calculate the following:
1. Calculate the Revenue variance.

2. Calculate the activity variance with respect to Revenue.

3. Calculate the Wages & Salaries spending variance.

4. Calculate the Parts & Supplies spending variance.

MGT11B Final Review Outline
WQ2021
Page 10 of 10

Chapter 10 Standard Costs and Variances
 Standard Costs and Variances allows us to break down the spending variances
into price variance and quantity variance
o Price Variance is the difference between the actual price and the
standard price, which tells us how well the company controlled the
acquisition price of resources

o Quantity Variance is the difference between the actual quantity and
standard quantity, which tells us how efficiently resources were used

 Materials Variances
o Factors that influence materials price –

o Factors that influence materials quantity –

 Labor Variances
o Factors that influence labor rate –

o Factors that influence labor efficiency variance –

 Interpretation of variable overhead variances is not a clear as direct materials
and direct labor because it depends solely on how efficiently direct labor was
used
Example
ABC Company produces one product. The direct material standards for one unit of
product is given below:
Standard
Quantity
Standard Price Standard Cost
Direct Materials 2.5 lbs \$3/lb \$15
During the month of February, the company planned on making 6,000 units, but the
following activity was recorded:
A. 10,000 lbs of material were purchased at a cost of \$3.15/lb.
B. All of the material purchased was used to produce 5,000 units.
1. Compute the materials price variance for February.

2. Compute the materials quantity variance for February.