Managerial Accounting - Appunti completi (2025-2026)

Managerial accounting

MANAGERIAL ACCOUNTING is concerned with providing information to

managers within an organization so that they can formulate plans,

control operations, and make decisions. Instead, financial accounting

focuses on reporting financial information to external parties, such as

stockholders, creditors and regulators. There are some key differences

between the two subjects:

Managerial accounting requires MORE DETAILED INFORMATION

●​ Managerial accounting is FORWARD LOOKING, the data employed

●​ is used to make estimates for the future, not to report the past

Managerial accounting is ORGANIZED BY UNIT, not by companies

●​ Managerial accounting is LESS COMPLIANCE ORIENTED, it has less

●​ rules and no principles

Managerial accounting has many purposes:

Assigning costs to cost objects

●​ Accounting for costs in manufacturing companies

●​ Preparing financial statements

●​ Predicting cost behavior in response to changes in activity

●​ Making decisions

●​

Costs classification

Cost classification means organizing costs into categories that make it

easier to analyze, control, and make decisions.

First of all, costs can be classified by traceability, meaning how easily we

can assign them to a specific object, called COST OBJECT.

DIRECT COSTS: costs that can be easily and conveniently traced to

●​ a unit of product or other cost object (ex. Direct material and direct

labour)

INDIRECT COSTS: costs that cannot be easily and conveniently

●​ Manufacturing

traced to a unit of product or other cost object (ex.

overhead)

COMMON COSTS: a subcategory of indirect costs, they are indirect

●​ costs incurred to support a number of cost objects. These costs

Salary of the

cannot be traced to any individual cost object. (Ex.

firm’s managers)

This classification works best when the COST OBJECT IS SMALL: if it is

too big, then most costs will appear as direct. The smallest the cost

objects, the more costs are indirect, and viceversa.

Manufacturing costs

This is a classification of costs BY FUNCTION, meaning what the cost is

for. Manufacturing costs are all the costs incurred for making the

product, mainly DIRECT MATERIALS, DIRECT LABOUR and

MANUFACTURING OVERHEAD.

Manufacturing overhead might include: depreciation of manufacturing

equipment, utility costs, property taxes and insurance premiums

incurred to operate a manufacturing facility. Only those indirect costs

associated with operating the factory are included in this category.

Non-manufacturing costs go beyond the manufacturing environment.

Some examples are SELLING COSTS, necessary to secure the order and

deliver the product, or ADMINISTRATIVE COSTS, executive,

organizational and clerical.

Product costs and period costs

For a manufacturing company, manufacturing costs coincide with

PRODUCT COSTS, that are all costs that are involved to acquire or make

a product. Product costs stay attached to a unit of product as long as it

remains in inventory awaiting sale.

For manufacturing companies, product costs include:

Raw materials

●​ Work in progress (partially complete units)

●​ Finished goods costs (units not yet been sold)

●​

It’s very important to draw a boundary on what is manufacturing and

what it is not because generally MANUFACTURING COSTS are ASSIGNED

TO PRODUCTS, while non manufacturing ones are assigned to PERIODS.

In other words, product costs can be inventoried (assigned to an asset)

and can be found in the BALANCE SHEET as long as they’re not sold,

then they move to the income statement. While period costs are

recorded immediately as they happen and go directly in the INCOME

STATEMENT.

If we consider a merchandising company, the cost of inventory is given,

while for manufacturers it has to be evaluated.

Cost classifications to predict cost

behavior

Cost behavior refers to how a cost will react to changes in the level of

activity. There are 3 most common classifications.

Firstly, we have VARIABLE COSTS, which vary according to the volume of

activity. A VARIABLE COST PER UNIT IS CONSTANT. The level of activity

can be measured in many different ways as reported in the picture.

Then we find FIXED COSTS: they stay the same regardless of the volume

of activity. The AVERAGE FIXED COST PER UNIT VARIES inversely with

change in activity. They can be divided between:

COMMITTED costs, long term, cannot be significantly reduced in

●​ the short term

DISCRETIONARY costs, may be altered in the short term by current

●​ managerial decisions

Lastly there also are MIXED COSTS, which have a variable component

and a fixed one.

Cost classifications used in making

decisions

When considering DECISION MAKING, costs can be classified between

RELEVANT and IRRELEVANT: the first are the ones that are differential

between two alternatives, whatever is left unchanged is an irrelevant

cost. SUNK COSTS are also a specific category of irrelevant costs: they are

costs incurred in the past that wouldn’t change due to the decision.

To make decisions, it is essential to have a grasp on the concepts of

differential costs and revenues, opportunity costs, and sunk costs.

DIFFERENTIAL COSTS (or incremental costs) are the difference in cost

between any two alternatives. A difference in revenue is called

differential revenue. Both are always relevant to decisions. Differential

cost can be either fixed or variable.

OPPORTUNITY COST, on the other hand, are the potential benefits that

are given up when one alternative is selected over another. These costs

are not usually found in accounting records but must be explicitly

Making a product instead of buying it:

considered in every decision. (Ex.

if we make it, we use more capacity that could be employed for

something else

Income statement formats

Given the information provided by managerial accounting we have the

possibility to structure the income statement in an alternative way. For

simplicity we analyze the case of a merchandising company (which

doesn’t have to evaluate the cost of products directly).

The TRADITIONAL FORMAT, COGS were given by the cost of purchase or

the manufacturing cost of all units. This method is mainly used in

financial accounting for external purposes.

With the CONTRIBUTION FORMAT, we compare variable and fixed

expenses: the classification of costs by behavior is reflected in the

statement. Managerial accountants structure the income statement to

mirror how costs behave (variable vs fixed), because that’s the

classification that matters for internal decisions (like pricing, cost control,

break-even analysis).

In a company’s accounting system, a single cost item (e.g. electricity) is

recorded once, but that same cost can be classified in different ways

Instead of writing the same cost many times

depending on the purpose.

in different reports, the company records it once in the system. Then,

depending on what kind of analysis we need (financial or managerial),

that same cost can be grouped or classified differently — without having

to re-enter the data.

Cost-volume-profit (CVP) analysis

The COST-VOLUME-PROFIT ANALYSIS or CVP ANALYSIS has many

different purposes:

ITEMIZE PROFIT, that is to write profit into a formula/equation,

●​ based on the cost classification. It is linked to 3 key concepts:

TOTAL CONTRIBUTION MARGIN = total revenues - total

○​ variable costs,

CONTRIBUTION MARGIN PER UNIT = price per unit - variable

○​ cost per unit,

CONTRIBUTION MARGIN PERCENTAGE or RATIO (it can be

○​ done in 2 ways) = total contribution margin/revenues or

contribution margin per unit/price per unit. To go from the

second to the first there must be a moltiplication by volume.

Depending on the itemization of profit, we can identify the

●​ QUANTITY OF BREAK EVEN or SALES OF BREAK EVEN. The first is

the volume at which we should operate to have total revenues =

total cost. The quantity multiplied by the price gives us the sales of

break even. Usually these are unknown in problems.

DETERMINE THE CHANGE IN PROFIT DUE TO A CHANGE IN

●​ VOLUME. How would a change in quantity reflect on the profits? It

can be expressed by the DEGREE OF OPERATING LEVERAGE,a

measure of risk.

“WHAT IF” ANALYSIS. Given the itemization of profits, it answers

●​ what is the selling price that allows the company to have a break

even or a targeted level of profit. What i s the variable cost per unit

that the firm needs to have in order to report certain profits? Same

thing with fixed costs.

MARGIN OF SAFETY. How far (below or above) is the company from

●​ the level of break even.

MULTIPLE PRODUCT, all the previous analysis can be adapted to

●​ scenarios where companies sell multiple products.

The fundamental concept of the CVP analysis is the itemization of profit,

which is built on the fixed-variable classification of costs.

π = × − × −

π = × −

The equation allows us to identify the quantity of break even: q(be) so

profit = 0, 0 = × −

() = =

−

This result tells us how many units must be produced to cover the

entirety of fixed costs. A certain volume brings both a specific amount of

revenues and variable costs, which are also associated with the BEP.

() =

The itemization of profit also allows us to estimate the amount of units to

sell to obtain a certain profit, both at a total, monetary level and at a unit

level. +

=

We can obtain as well the SAFETY MARGIN, which can both be

expressed in monetary or quantitative terms.

= −

= −

Another important definition in the CVP analysis is the DEGREE OF

OPERATING LEVERAGE: it reflects how rigid the cost structure is to

fluctuations in demand. It is a tool that reflects OPERATING RISK by

measuring THE PERCENTAGE CHANGE IN PROFIT DUE TO A CHANGE

IN THE ACTIVITY VOLUME.

=

If it is RIGID, it means that once the BEP is reached, each additional

●​ unit will bring a great profit, being mostly all margin. This also

implies VERY HIGH FIXED COSTS, but once they’re covered, lots of

additional profits.

If it is FLEXIBLE, it means that it is easier to break even, but each

●​ additional unit will bring less profit. It is a very adaptable structure,

but it grants a LOWER MARGIN.

The adaptable structure is less rewarding, but safer, while the rigid one is

riskier: if there’s a fluctuation in demand, the fixed costs might remain

uncovered.

If the DOL IS HIGH then the cost structure is rigid (high risk)

●​ If the DOL IS LOW then the cost structure in variable (low risk)

●​

Job-Order costing

JOB-ORDER COSTING is a cost allocation system used by companies

that produce MANY PRODUCTS for each period, specifically

MANUFACTURED TO ORDER. The unique nature of each order requires

tracing or allocating costs to each job and maintaining cost records for

each job. Some examples of companies that apply this methodology are

Boeing for aircrafts and Disney for movies.

The first step of the process is to CHARGE DIRECT MATERIALS and

DIRECT LABOR directly to each job as the work is performed. Then we

move to overhead costs, specifically manufacturing overhead, which are

ALLOCATED TO ALL JOBS rather than being directly traced to each job.

For this task, companies must choose a COST DRIVER as an allocation

base, meaning a fa