Managerial Accounting
Core concepts
Managerial accounting supports internal decisions. Candidates must understand cost behavior (fixed, variable, mixed), cost-volume-profit (CVP) analysis, contribution margin, break-even, and target profit. Know the high-low method to separate mixed costs, job-order versus process costing, and standard costing with variance analysis (price/rate and quantity/efficiency variances). Budgeting concepts-master budget sequence, flexible budgets-and relevant costing for decisions (make-or-buy, special orders) are frequently tested. Absorption costing includes fixed overhead in product cost; variable costing does not.
Traps
The biggest trap is confusing contribution margin (sales − variable costs) with gross margin (sales − cost of goods sold, which includes fixed overhead under absorption costing). Another is including sunk costs or allocated fixed costs in a special-order decision-only relevant (differential) costs matter. In variance analysis, remember price variance uses actual quantity, and quantity variance uses standard price.
Worked example
Selling price $20, variable cost $12, contribution margin $8 per unit, fixed costs $40,000. Break-even units = 40,000 ÷ 8 = 5,000 units. To earn $16,000 target profit: (40,000 + 16,000) ÷ 8 = 7,000 units. Rule of thumb: break-even = fixed costs ÷ contribution margin per unit; target units = (fixed costs + target profit) ÷ CM per unit.