# What is Management accounting?

Essay by rebel1University, Bachelor'sA, August 2007

The raw material used to make the hamburgers is an item of variable cost because the more hamburgers that are produced, the more raw materials you will have to have, and if less hamburgers are made then the fewer raw materials will be required.

The rent for the building is an item of fixed cost. No matter whether the hamburgers are made is increased or decreased; the rent on the build will remain unchanged. Even if no hamburgers were made, the rent on the building would be the same and will have to be paid.

What would the cost be for each unit?Total units of sale = Q = 1000Total Raw Materials Cost = V = 650Raw Materials cost per unit = v = V/Q = 650/1000 = .650Total Building Rent = F = 9000Building Rent cost per unit = f = F/Q = 9000/1000 = \$9If the volume of our sales is increased to 6000 units, and then we increase it to 8000 units the next year, and we stay in the relevant range, what would the total annual cost and unit cost of fixed and variable costs?For Q = 6000The Raw Materials cost, because it is variable cost, v is constant.

v = .650Total Raw Materials cost = v*Q = .650*6000 = 3900For Building Rent, since it is a fixed cost, F is constant.

F = 9000Building Rent cost per unit = f = F/Q = 9000/6000 = 1.5Total annual cost = C = V + F = 3900 + 9000 = 12900Unit fixed cost = Building Rent cost per unit = f = 1.5Unit variable cost = Raw Materials cost per unit = v = .650For Q = 8000For Raw Materials cost, since it is variable cost, v is constant.

v = .650Total Raw Materials cost = v*Q = .650*8000 = 5200For Building Rent, since it is a fixed cost, F is constant.

F = 9000Building Rent cost per unit = f = F/Q = 9000/8000 = 1.125Total annual cost = C = V + F = 5200 + 9000 = 14200Unit fixed cost = Building Rent cost per unit = f = 1.125Unit variable cost = Raw Materials cost per unit = v = .650Reference:Horngren, C.T, Sundem, G.L., & Stratton, W.O. (2005). Introduction to management accounting 13th edition. Upper Saddle River: Pearson Education, Inc..