The Next Time You're on Jeopardy

ACCT II final? Woh buddy, that test WAS HARD! But I tell you what, the next time you're on Jeopardy and there's a category labeled "Managerial Accounting," you'll be all set. Here's what you need to know:

The Statement of Cost of Goods Manufactured:
Cost of Goods Manufactured = (Direct Materials Used + Direct Labor + Manufacturing Overhead) + Beginning-of-the-year Work-in-Process Inventory - End-of-the-year Work-in-Process Inventory. All financial statements must be written in good form with proper 3-line heading and with proper punctuation, indentation, and account titles.

Confused? Oh, we haven't even started yet.

Work-in-Process Inventory: just as the name implies, this is work in process, widgets that are being worked on.

Finished Goods Inventory: when the widgets are finished, they are moved from the Work-in-Process Inventory into the Finished Goods Inventory. From the Finished Goods Inventory, widgets can be sold to the public... in which case, said goods would be moved out of the Finished Goods inventory and recorded in an account called Cost of Goods Sold at whole sale price, then the sale would be recorded at retail price.

Direct Materials Used = Beginning-of-the-year Direct Materials Inventory + Direct Materials Purchased - End-of-the-year Direct Materials Inventory

Direct Labor: usually given in a rate per hour

Manufacturing Overhead: includes items such as indirect labor, indirect materials, rent on the manufacturing plant, expenses for the manufacturing plant such as electricity and insurance, etc. DOES NOT included Sales Expenses such as advertisings or sales commissions OR General and Administrative Expenses such as rent on administrative offices or CEO's salary.

Indirect Labor and Indirect Materials: includes labor and materials used in maintenance of the actual manufacturing plant and equipment. For instance, say that a textile plant has weaving machines that run for about 10 hours a day, AND those machines need to be kept oiled and running smoothly. What the plant pays for oil would be an expense incurred as an indirect material, and what the plant pays workers to apply that oil would be an expense incurred as indirect labor.

Now onto Cost/Profit Analysis (Some equations you're going to need):
Sales Revenue - Variable Costs - Fixed Costs = Profit
Sales Revenue = Sales Price * Units sold
Contribution Margin = Sales Price - Variable Costs per Unit
Contribution Margin Ratio = Contribution Margin/Sales Price
Break Even Analysis (in Units) = Fixed Costs/Contribution Margin
Break Even Analysis (in Dollars) = (Fixed Costs/Contribution Margin)*Sales Price

Variable Costs: usually includes items like labor (both direct and indirect) that change based the Job Order (it takes more hours to create 100 widgets than it takes to create 10 widgets). Also includes materials (both direct and indirect) for the same reason.

Fixed Costs: includes Overhead charges, Sales Expenses, and General and Administrative Expenses... the rent on the factory and the CEO's salary are not going to change no matter how many widgets are produced in a month.

And that's really a very solid, scratch-the-surface kind of glimpse into the world of Managerial Accounting.

I know that all this accounting mumbo-jumbo sounds insane, but gosh darn-it, doesn't all this shop-talk make you hot? I know what you're saying, 'no.' But don't worry, the next time you're on jeopardy, you'll thank me. (By reading his Blog Entry, you are agreeing to pay me a retainer at the rate of $5 per minute that you spent reading said Entry. And in the event that the information written here leads to Jeopardy winnings, this message entitles me to collect 10% of said winnings before taxes).