BU247 Lecture Notes - Lecture 2: Contribution Margin, Cost Driver, Fixed Cost
Document Summary
Management accounting supports decision making: cost information is pervasive throughout decision-making situations, pricing, product planning, budgeting, performance evaluation, contracting. Selling price - vc = cm - fc = profit. Variations of cvp equation: to calculate sales needed to achieve target profit, required unit sales, = (target profit + fixed cost) / contribution margin per unit. Impact of income taxes: required unit sales, = [target profit / (1 tax rate) + fixed costs] / contribution margin per. Other useful cost definitions: mixed cost a cost that has variable and fixed components, step variable cost a variable cost that increases in steps as the quantity increases. Make-or-buy: the outsourcing decision: the financial focus in the make-or-buy decision is whether the costs avoided internally are greater than the added external costs when purchasing a product or service from a supplier. Manufacturing costs not direct material or direct labor.
