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Managerial Accounting
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Variable Costs
Costs that vary directly with the level of production. For example, raw materials costs would typically increase as more units are produced.
Fixed Costs
Costs that do not change with the level of production, such as rent, salaries, and insurance.
Direct Costs
Costs that can be directly attributed to the production of a specific product or service, such as labor or materials.
Indirect Costs
Costs that are not directly traceable to a specific product, often referred to as overhead, such as utilities and administrative salaries.
Job-Order Costing
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.
Process Costing
A costing method used for homogenous products that are produced in a continuous process, such as chemicals or food.
Contribution Margin
The amount remaining from sales revenue after variable costs have been deducted; this helps in understanding how sales affect profitability.
Break-even Point
The level of sales at which total revenues equal total costs, resulting in neither profit nor loss.
Margin of Safety
The difference between actual or budgeted sales and the break-even sales; it measures the risk of loss from a decline in sales.
Activity-Based Costing (ABC)
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.
Cost-Volume-Profit (CVP) Analysis
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.
Overhead Rate
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.
Direct Labor
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.
Variance Analysis
The process of analyzing the differences between actual and budgeted figures to understand deviations and take corrective action.
Operating Leverage
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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