Essential Cost Accounting Principles and Calculations

Merchandise Accounting

CGPUR (Cost of Goods Purchased): (Discounts + Returns + Allowances) = CGPUR. CGS (Cost of Goods Sold): Beginning Merchandise Inventory + CGPUR = Cost of Goods Available for Sale - Ending Merchandise Inventory = CGS. Income Statement: Revenue - CGS = Gross Margin - Operating Costs = Operating Income.

Manufacturing Cost Accounting

CGMAN (Cost of Goods Manufactured):

• Direct Materials: Beginning Direct Materials Inventory + Purchases of Direct Materials = Cost of Direct Materials Available for Use - Ending Inventory = Direct Materials Used.
• Indirect Manufacturing Costs: Indirect Manufacturing Labor + Plant Insurance + Depreciation + Repairs & Maintenance = Total Indirect Manufacturing Costs.
• Total Manufacturing Costs: (Direct Materials Used + Direct Manufacturing Labor + Total Indirect Costs) + Beginning Work-in-Process Inventory = Total Manufacturing Costs to Account For - Ending WIP = Cost of Goods Manufactured.

CGS: Beginning Finished Goods Inventory + Cost of Goods Manufactured = Cost of Goods Available for Sale - Ending Merchandise Inventory = CGS.

Variable Costing (VC)

Revenue: Price * Quantity. Variable Costs: Beginning Inventory (BI * VC per unit) + Variable Manufacturing Costs (Quantity * Manufacturing Cost per unit) = Cost of Goods Available for Sale - Ending Inventory [(BI + Production - Sales) * Manufacturing Cost per unit] = Variable Cost of Goods Sold + Variable Operating Costs (Operating Cost per unit * Sales Quantity) = Total Variable Costs. Contribution Margin: Revenue - Total Variable Costs. Fixed Costs: Fixed Manufacturing Costs + Fixed Operating Costs = Total Fixed Costs. Operating Income: Contribution Margin - Total Fixed Costs.

Absorption vs. Variable Costing

The difference is due to moving fixed manufacturing costs into inventories. As inventory increases, operating income increases. 2015 Formula: Operating Income (Absorption) - Operating Income (Variable) = (Ending Inventory * Rate) - (Beginning Inventory * Rate).

Absorption Costing (ABS)

Fixed Manufacturing Cost Rate: Total Fixed Manufacturing Costs / Budgeted Level of Production. CGS: Beginning Inventory (BI Quantity * Cost per unit) + Variable Manufacturing Costs (Prior * Quantity) + Allocated Fixed Manufacturing Costs (Production * Rate) = Cost of Goods Available for Sale - Ending Inventory [(Beginning Inventory + Production - Sales) * (Manufacturing Variable Cost + Rate)] + Adjusted Production Volume Variance (Total Fixed Manufacturing Costs - Allocated) = CGS. Gross Margin: Revenue - CGS. Operating Costs: Variable Operating Costs + Fixed Operating Costs = Total Operating Costs. Operating Income: Gross Margin - Total Operating Costs.

Break-Even and ABC Analysis

Break-Even (Sales Mix Ratio): Units Sold / Units Base. Quantity: Fixed Costs / ((Contribution Margin A * Sales Mix Ratio) + Contribution Margin B). Activity-Based Costing (ABC): Revenue (Price * Sales) - Variable Costs (VC * Sales) = Margin. Margin Percentage: Margin / Revenue. Rate: Estimated Annual Cost / Driver Activity Level.

Activity Analysis and Opportunity Cost

Activity/Client Table: Rate * Sales. Sum of each company = Overhead. Operating Income Percentage: Margin - Overhead. Operating Income Rate: (Operating Income / Revenue) * 100. Opportunity Cost: Contribution Margin per unit (Sales Price - Variable Cost), Machine Hours to manufacture 1 unit. Total Machine Hours = (Contribution Margin per unit / Machine Hours per unit). Maximum Profit: Units / Machine Hours per unit + Extra. Extra Profit is calculated by identifying the lowest operating income products to stop manufacturing and reallocating resources to higher-margin production.