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Managerial Accounting

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Variable Costs

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Costs that vary directly with the level of production. For example, raw materials costs would typically increase as more units are produced.

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Fixed Costs

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Costs that do not change with the level of production, such as rent, salaries, and insurance.

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Direct Costs

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Costs that can be directly attributed to the production of a specific product or service, such as labor or materials.

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Indirect Costs

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Costs that are not directly traceable to a specific product, often referred to as overhead, such as utilities and administrative salaries.

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Job-Order Costing

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A costing system used to assign costs to specific jobs or batches, which is often used by companies that produce unique products or offer specialized services.

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Process Costing

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A costing method used for homogenous products that are produced in a continuous process, such as chemicals or food.

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Contribution Margin

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The amount remaining from sales revenue after variable costs have been deducted; this helps in understanding how sales affect profitability.

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Break-even Point

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The level of sales at which total revenues equal total costs, resulting in neither profit nor loss.

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Margin of Safety

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The difference between actual or budgeted sales and the break-even sales; it measures the risk of loss from a decline in sales.

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Activity-Based Costing (ABC)

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A costing methodology that assigns costs to activities based on their use of resources; it is used to more accurately assign product costs based on the activities they require.

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Cost-Volume-Profit (CVP) Analysis

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A tool that helps managers understand the interrelationships between cost, volume, and profit by focusing on the effects of changes in costs and volume on a company’s profit.

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Overhead Rate

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Calculated by dividing total overhead costs by an allocation base, such as direct labor hours, and it's used to assign overhead costs to products or jobs.

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Direct Labor

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The labor costs of employees actively engaged in the production of goods or services, which are considered direct costs and are directly attributable to the product.

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Variance Analysis

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The process of analyzing the differences between actual and budgeted figures to understand deviations and take corrective action.

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Operating Leverage

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A measure of how sensitive net operating income is to a given percentage change in dollar sales, highly leveraged businesses have more fixed costs and thus higher risk.

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