Page 14 - Managerial Accounting-MGT 145

Module 3: Decision Making

This unit evaluate costs and make management
decisions. Examining direct materials, direct labor, and

manufacturing overhead to rearrange this information
as variable costs, fixed costs, and mixed costs (fixed

and variable costs combined).

For example, in the previous unit we classified a factory

worker who earns a salary and annual bonus based on
company performance as direct labor.

In this unit, we allocate salary to fixed costs, and the
bonus to variable costs. We also explore how

managers make decisions (what needs to occur during
the next hour, day, week, or year). Fixed cost restraints,

such as plant size, equipment size, and age, often define
short-term decisions.

Understanding how these three types of costs variables
(variable costs, fixed costs, and mixed costs) behave

in patterns allow business managers to predict any
change in revenue, operating income, and sales volume.