Cost & Managerial Accounting · 3. Step III: Calculate (Weighted Average) Unit Costs Costs Unit Beginning WIP Current Total EFU Cost Material $495,000 82,500 Conv ersion 8,18 750

Cost & ManagerialAccounting

GB. IG

1

Cost & Managerial Accounting

COST ACCOUNTING

A. Job-Order Costing

B. Process Costing

1. Cost-flow Assumptions

a. Weighted Average

b. FIFO

2. Three Step Process

a. Step I: Account for all Units

b. Step II: Calculate Equivalent Finished Units (EFU)

c. Step III: Calculate Unit Costs

Notes:

2


PROCESS COSTING

Joy Manufacturing Company

Beginning work in progress inventory, January 1 25,000 units

Ending work in Progress inventory, December 31 35,000 units

stinu 000.08 doirep gnirud detratS

stinu 000,56 derrefsnart dna dehsiniF

Notes:

Degree of Completion Production costsBeginning WIP:

Raw Material 10% complete $ 95,000Labor/Overhead 20% complete 78,750

$173,750Ending WIP:

Raw Material 50% completeLabor/Overhead 30% complete

Current Period CostsRaw Material $400,000Labor/Overhead 110,000

000,015Total stsoC gnirutcafunaM $683,750

WIP=working in progress

EFU=Equivalent Finished Units

3


WEIGHTED AVERAGEA. Three-Step Process

1. Step I: Account for all units

Beginning WIP 25,000 Finished 65,000Started 80,000 Ending WIP 35,000

000,5 tsoLUnits to account for 105,000 Units to account for 105,000

2. Step II: Calculate (Weighted Average) EFU

Material Material Material ConversionAssumption: Added Evenly Added Start Added End Costs

Units Units Units UnitsFinished 65,000 65,000 65,000 65,000Ending WIP 50% 17,500 100% 35,000 0% 0 30% 10,500EFU 82,500 100,000 65,000 75,500

3. Step III: Calculate (Weighted Average) Unit Costs

Costs UnitBeginning WIP Current Total EFU Cost

Material $495,000 82,500

Conv ,881 noisre 750 75,500

05.8 latoT

B. Spoilage

1. Normal Spoilage

a. Product cost

b. Ignore, has the effect of distributing cost among good product

c. Rework cost: Assume charged to factory OH, unless otherwise stated

2. Abnormal Spoilage

a. Period cost

b. Added to EFU calculation

Independently answer multiple choice questions 1-3.

95,000$2.50110,000

400,00078,750

$6

4


MCQ

A. Question 1: Conversion Costs

Step II. Calculate EFU: (Weighted Average)

Finished units 10,000Ending WIP (4,000 x 75%) 3,000EFU 13,000

B. Question 2

Step II. Calculate EFU: Material (Weighted Average)

Finished 42,500Ending WIP 12,500EFU 55,000

Step III. Calculate (Weighted Average) Unit Costs


Material 5,500 18,000 23,500 55,000 0.43

C. Question 3: Transferred to Second Department

Step II. EFU: Conversion (Weighted Average)

Finished 7,000Ending WIP (2,500 x 80%) 2,000Normal spoilage 500EFU 9,500

Step III. Calculate Unit Costs


Convension 10,000 75,500 85,500 9,500 9.00

Finished (7,000 x $9) $63,000Spoiled (500 x $9) 4,500Transferred to second department $67,500

5


FIFO

A. Comparison to Weighted Average Method

1. Same three-step process

2. Same treatement for spoilage

B. Example

1. Step I. Account for all units (same): 5,000 lost units

2. Step II. EFU: Material

Finished 65,000 Plus: Ending WIP (35,000 x 50%) 17,500 Less: Beginning WIP (25,000 x 10%) (2,500)EFU 80,000

3. Step II. EFU: Conversion

Finished 65,000 Plus: Ending WIP (35,000 x 30%) 10,500 Less: Beginning WIP (25,000 x 20%) (5,000)EFU 70,500

4. Step III. Calculate Unit Costs (FIFO)

Current Unit Costs EFU Cost

Material 400,000 80,000 5.00Conversion 110,000 70,500 1.56Total Unit 6.56

Independently answer multiple choice question 4.

D. Net Realizable Value (NRV) Method

1. Also called Relative Sales Value at Split-off Method

2. Also called Relative Sales Value Method

Answer multiple choice question 5

E. Question 5: Joint and By-products

Sales Value $9,000 Joint Costs $54,000Additional By-product Costs 5,000 NRV of By-product 4,000NRV of By-product $4,000 Joint Costs Allocated to KUL and JU $50,000

Sales Additional Sales Value JointValue Costs at Split-off % Costs

KUL $ 40,000 -0- $ 40,000 40 $20,000JU 60,000 -0- 60,000 60 30,000

$100,000 $100,000 100 $50,000

Joint Costs: KUL = 40% x $50,000 = $20,000

6


JOINT & BY-PRODUCTSA. Question 4: EFU Conversion (FIFO)

160,0008,000

(6,000)1

Finished unitsPlus: Ending WIP (20,000 x 40%) Less: Beginning WIP (10,000 x 60%) EFU 62,000

Notes:

B. Joint Costs:

C. By Product

Exist where two or more products are produced from processing the same raw materials

are products that have minor sales value as compared with sales value of the main product

7


JOB-ORDER COSTING

Notes:

A. Job-Order Approach

1. Custom-made items; every order unique

2. As you start a job order cost sheet or card

B. Process

1. Direct Material and Labor: Actual amounts charged to each job

2. Overhead: Estimated amounts charged to each job

a. Use $48 of material in production

DR: 4 8W　I　P CR: Material Invento 4 8y r

b. Charge $99 labor to production

DR: 9 9 CR: Wages Payable 9 9

c. Apply overhead of $8 per direct labor hour (DLH) x 9 hours

DR: 7 2 CR: OH Applie 7 2 d

d. Purchase $100 of supplies

DR: Stores Contro 1 0 0lCR: Cas 1 0 0h

e. Use $25 of supplies in production

DR: OH Contro 2 5lCR: Stores Contro 2 5l


Special order

(This is estimate)

W　I　P

W　I　P

8


MCQ

Notes:

A. Question 6

DR: Stores Control XX CR: Cash XX Purchase indirect materials

B. Question 7

DR: WIP XX CR: Material Inventory XX Use direct material in production

C. Question 8

DR: OH Control XX CR: Stores Control XX Issue indirect material to production

9


MISCELLANEOUS TOPICSA. Just-In-Time (JIT) Costing System: Try to eliminate non-value-adding activities

(activities that customers are unwilling to pay for, such as storage)

XX lortnoC HO :RDXX hsaC :RC

B. Activity-Based Costing (ABC) System

1. Activities consume costs

2. Try to identify appropriate cost drivers and trace them to products

3. Direct materials: Same

4. Direct labor: Same

5. Overhead: May have many cost drivers

Answer multiple choice questions 9-10

Question 9:

Question 10:

C. Manufacturing Company Inventory Calculations

D. Question 10: Baker Company, Inventory Calculations

seirotnevnI gninnigeB latoT $ 87,000RM P 3 sesahcru 00,000L 21 roba 0,000

11 daehrevO 0,000 stupni fo latotbuS 617,000

Less: Total E ( seirotnevnI gnidn 96,000)CGS $521,000

Total Beginning (RM + WIP) $ 62,000RM P 3 sesahcru 00,000L 21 roba 0,000

11 daehrevO 0,0005 stupni fo latotbuS 92,000

Less: Ending Inventory (RM + WIP) (78,000) derutcafunam sdoog fo tsoC $514,000

No store control

Yoko Sobajima

線

10


STANDARD COST PROBLEM

Notes:

Armando Corporation manufactures a product with the following standard costs: Direct materials (20 yards @ $1.35 per yard) $27 Direct labor (4 hours @ $9.00 per hour) 36 Factory overhead–applied at five-sixths of direct labor (Ratio of variable costs to fixed costs: 2 to 1) 30 Total standard cost per unit of output $93

Standards are based on normal monthly production involving 2,400 direct labor hours(600 units of output). Armando actually produced 500 units of product in July.

Fixed overhead budget $6,000Variable overhead rate $5 per direct labor hour

The following information pertains to the month of July

Direct materials used 9,500 yards Direct materials purchased (18,000 yards @ $1.38 per yard) $24,840 Direct labor (2,100 hours @ $9.15 per hour) 19,215 Actual factory overhead 16,650

Prepare the following schedules for the month of July, indicating whether each varianceis favorable or unfavorable.

1. Materials price variance (based on purchases)

2. Materials usage variance

3. Labor rate variance

4. Labor efficiency variance

5. Controllable factory overhead variance

6. Volume factory overhead variance

Armando CorporationExample 2

11


MATERIAL VARIANCES

A. Material Price (Labor Rate) Variance

1. FormatA x A = Actual Units x Actual PriceA x S = Actual Units x Standard Price

A x A18,000 $1.38 = $24,840

A x S 18,000 $1.35 = 24,300Material Price Variance $ 540 Unfavorable

2. Shortcut: $0.03 x 18,000 yards = $540 (Unfavorable)

B. Material Usage (Labor Efficiency) Variance

1. Format

A x S = Actual Units x Standard PriceS x S = Standard Units x Standard Price

A x S9,500 $1.35 = $12,825

S x S 10,000 $1.35 = 13,500Material Usage Variance $ 675 Favorable

2. Standard units

Actual production 500 unitsStandard component x 20 yardsStandard units 10,000 yards

3. Shortcut: 500 yards x $1.35 = $675 (Favorable)

C. Total Material Variance: 540 DR + 675 CR = 135 CR (Favorable)

Notes: A=ActualActual purchase price

A. Labor Rate (Material Price) Variance

1. Format

A x A = Actual Hours x Actual RateA x S = Actual Hours x Standard Rate

A x A2,100 $9.15 = $19,215

A x S 2,100 $9.00 = 18,900Lavor Rate Variance $ 315 Unfavorable

2. Shortcut: $0.15 x 2,100 hours = $315 (Unfavorable)

B. Labor Efficiency (Material Usage) Variance

1. Format

A x S = Actual Hours x Standard RatesS x S = Standard Hours x Standard Rates

A x S2,100 $9.00 = $18,900

S x S 2,000 $9.00 = Labor Efficiency Variance

18,000$ 900 Unfavorable

2. Standard Units

Actual production 500 unitsStandard component x 4 hoursStandard hours 2,000 hours

3. Shortcut: 100 hours x $9.00 = $900 (Unfavorable)

C. Total Labor Variance: 315 DR + 900 DR = 1,215 DR (Unfavorable)

12


LABOR VARIANCES

Notes:

13


OVERHEAD VARIANCES

A. Two-Way Overhead (OH) Analysis

Actual OH 16,650650 U OH Controllable Variance

Budgeted Standard Hours 16,000 2,000 hours x $5.00 + $6,000 1,000 U OH Volume (Capacity)

Variance OH Applied (500 x $30) 15,000 Total OH Variance 1,650 1,650 U Total OH Variance

1. OH Volume (Capacity) Variance

a. Represents purely fixed costs

b. Exists because production quantity (volume) doesn’t match the budgetedquantity

c. Volume variances are caused by volume of production and thus generallybeyond the control of management

2. OH Controllable Variance

a. Theoretically under the control of management

b. Composed of a spending and an efficiency component

c. Has both fixed and variable elements

Yoko Sobajima

線

Yoko Sobajima

線

14


B. Three-Way Overhead Analysis

056,61 HO lautcA ecnairaV gnidnepS HO U 051

Budgeted Actual Hours 16,500ecnairaV ycneiciffE HO U 005

Budgeted Standard Hours 16,000 2,000 hours x $5.00 + $6,000 1,000 U OH Volume (Capacity) Variance OH Applied (500 x $30) 15,000 Total OH Variance 1,650 1,650 U Total OH Variance

Notes:

2,100x5+6,000

Actual Fixed Items 6,200Budgeted Fixed Items 6,000Fixed Spending Variance 200 200 U Fixed Spending Variance

Actual Variable Items 10,450Budgeted Variable Items 10,500Variable Spending Variance 50 50 F Variable Spending Variance

15


C. Four-Way Overhead Analysis

Actual OH 056,61 U 051 OH Spending Variance

Budgeted Actual Hours 16,500

Actual OH 056,61 dexiF U 002 OH Spending Variance

elbairaV F 05 OH Sspending Variance Budgeted Actual Hours 16,500

U 005 OH Efficiency Variance Budgeted Standard Hours 16,000 2,000 hours x $5.00 + $6,000 1,000 U OH Volume (Capacity) VarianceOH Applied (500 x $30) 15,000Total OH Variance 1,650 1,650 U Total OH Variance

Notes:


assume ＞16,650→

assume→→2,100x5

16


MCQ

Notes:

A. Question 11: Kennedy Company, Material Price Variance

A x A = Actual Units x Actual Price A x S = Actual Units x Standard Price

A x A 1,600 ? = $5,520 A x S 1,600 $3.60 = 5,760 Material Price Variance $ 240 Favorable

Actual price $5,520 / 1,600 = $3.45

B. Question 12: Lab Company, Labor Efficiency Variance

A x S = Actual Hours x Standard Rates S x S = Standard Hours x Standard Rates

A x S 1,600 $6.00 = $ 9,600 S x S 1,500 $6.00 = 9,000

Labor Efficiency Variance $ 600 Unfavorable

$9.600 / $6.00/hour = 1,600 hours

C. Questions 13 & 14: Beth Company, Two-Way Overhead Analysis

Actual OH 123,000 U 000,1 OH Controllable Variance

Budgeted Standard Hours 122,000 $72,000 + $50,000 500 F OH Volume (Capacity) VarianceOH Applied 122,500Total OH Variance 500 500 U Total OH Variance

4x18,000→

17


HIGH-LOW METHOD

A. Variable Cost: The amount of cost is related to the number of units produced or the number of hours worked. Direct material and direct labor are considered purely variable costs.

B. Fixed Costs: Set in amount regardless of the number of units produced or the number of hours worked, within a certain (or relevant) range of activity. Factory overhead is considered both variable and fixed.

C. Relevant Range: The range of activity within which cost relationships remain valid.

D. Mixed Costs: Costs elements that are considered partly fixed and partly variable (Examples: supervisor’s salaries and maintenance costs). Factory overhead is mixed. Break down a mixed cost using various methods, including the high-low method.

Notes:

Answer multiple choice questions 15-16.

directly

18


MCQ

A. Questions 15 & 16: Alfa Company, High-Low Method

Highest Lowest Cost per month $39,200 $32,000 Machine hours 24,000 15,000

Variable Cost = (Change in Cost) / (Change in Activity)

($39,200 – $32,000) / (24,000 hours – 15,000 hours) = $7,200 / 9,000 hours = $0.80/hour

Fixed Cost ( = Total Cost – Variable Cost):

High end of range: Variable Cost = 24,000 hours x $0.80/hour = $19,200 Fixed Cost = $39,200 – $19,200 = $20,000 Low end of range: Variable Cost = 15,000 hours x $0.80 /hour = $12,000 Fixed Cost = $32,000 – $12,000 = $20,000

Independently answer multiple choice question 17.

B. Question 17: Mat Company, High-Low Method

Variable Cost = ($160,000 – $132,000) / (80,000 kilos – 60,000 kilos) = $1.40/kilo

Fixed Cost = $160,000 – 80,000 kilos x $1.40/kilo = $160,000 – $112,000 = $48,000Fixed Cost = $132,000 – 60,000 kilos x $1.40/kilo = $132,000 – $84,000 = $48,000

Total Cost at 75,000 kilos = 75,000 kilos x $1.40/kilo + $48,000 = $153,000

Absorption Direct

DIRECT VS ABSORPTION COSTING

Notes:

A. Cost vs. Managerial Accounting: Absorption costing allocates all manufacturingcosts to units produced. Both variable and fixed manufacturing costs areconsidered costs of inventory.

1. Absorption Costing: Units produced absorb all the manufacturing costs, bothvariable and fixed.

2. Direct (Variable) Costing: Only variable manufacturing costs are part of inventorycost.

a. Fixed manufacturing cost are treated as a period expense. Why?

b. Fixed manufacturing costs have more to do with the toproduce. Not acceptable under GAAP, but it mirrors how business peoplethink.

B. Contribution Margin: Sales less all the variable costs, including variable selling costs

Unit Cost for InventoryExample 3

Direct Material 5 lbs @ $2.00

Direct Labor 4 hrs @ $2.50

Variable Factory OH $0.50 per DLH

Fixed Factory OH $1.00 per DLH

Variable Selling $1.00 per unit

Fixed Selling $6,000 per year

Unit Cost


19


GAAP!!

10 1010 102 24 NONO NONO NO26 22

ability

ABSORPTION COSTINGYear 1: Produced 2,000 units; Sold 1,000 units @ $100

$ selaS

Beginning Inventory $

Plus: Cost of Goods Manufactured

Equals: Goods Available for Sale $

Less: Ending Inventory

Cost of G dloS sdoo

Gross Prof $ ti

Less: Variable Selling

Fixed Selling

Profit Before Tax $

< >

< >

< >

< >

C. Relationships: All else being equal,

If production is greater than sales, profit is greater under absorptioncosting than direct costing.

If production is less than sales, profit is less under absorption costingthan direct costing.

If production equals sales, profit under absorption costing equals theprofit as direct costing.

20


1.

2.

3.

100,0000

52,00052,000

26,000

26,000

74,000

67,000

6,000

1,000

2,000x26

1,000x26

$1x1,000sold

21


DIRECT COSTINGYear 1: Produced 2,000 units; Sold 1,000 units @ $100

$ selaS

Beginning Inventory $

Plus: Cost of Goods Manufactured

Equals: Goods Available for Sale $

Less: Ending Inventory

Variable Cost of Goods Sold

Contribution Margin From Manufacturing $


Contribution Marg $ ni

Less: Fixed Factory Overhead

Fixed Selling

Profit Before Tax $

< >

< >

< >

< >

< >

Notes: Contribution margin per unit is sales less all variable costs.

Shortcut: Contribution Margin = $77/unit x 1,000 units = $77,000 (Shortcut only workswhen sales price and variable costs per unit do not change between years.)

2,000x22

1,000x22

$1x1,000sold

$4x2,000units

100,0000

44,000

44,000

22,000

22,00078,000

77,000

1,000

8,000

6,00063,000

ABSORPTION COSTING

22


Year 2: Produced 2,000 units; Sold 2,500 units @ $100

000,052 $ selaS

Beginning Inventory $ 26,000

Plus: Cost of Goods Manufactured 52,000

Equals: Goods Available for Sale $ 78,000

Less: Ending Inventory 13,000

Cost of G dloS sdoo 65,000

Gross Prof 1 $ ti 85,000

Less: Variable Selling 005,2

Fixed Selling 6,000

Profit Before Tax 1 $ 76,500

< >

< >

< >

< >

Notes:

1,000x26

500x26

23


DIRECT COSTINGYear 2: Produced 2,000 units; Sold 2,500 units @ $100

000,052 $ selaS

Beginning Inventory 000,22 $




000,55

1 $ 95,000

005,2

1 $ 92,500

Variable Cost of Goods Sold

CM from Manufacturing


Contribution Margin

Less: Fixed Factory Overhead 8,000

Fixed Selling 6,000

Profit Before Tax 1 $ 78,500

< >

< >

< >

< >

< >

Notes:

Shortcut: Contribution Margin = $77/unit x 2,500 units = $192,500

1,000x22

500x22

< >

ABSORPTION COSTING

24



Sales $ 200,000

Beginning Inventory $ 13,000




Cost of Goods Sold 52,000

Gross Profit $ 148,000


Fixed Selling 6,000

Profit Before Tax $ 148,000

< >

< >

< >

Notes:

500x26

500x26

↓140,000


000,002 $ selaS

Beginning Inventory 000,11 $




Variable Cost of G dloS sdoo 44,000

Contribution Margin From Manufacturing $ 156,000


Contribution Marg 1 $ ni 54,000

Less: Fixed Factory Overhead 8,000

Fixed Selling

Profit Before Tax

6,000

$ 140,000

Notes:

Shortcut: Contribution Margin = $77/unit x 2,000 units = $154,000


25


DIRECT COSTING

< >

< >

< >

< >

< >

500x22

500x22

B. Question 20: Sand Company, Direct Costing Income

Selling Price $ 20 Variable Costs (10)

CM / Unit $ 10

Contribution Margin (80,000 Units x $10) $ 800,000 Fixed Costs (380,000)

Profit $ 420,000

C. Question 21: Sand Company, Absorption Costing Inventory

DM $ 4.00 DL 2.50 Variable OH 1.50 Variable Selling No

Fixed OH $ 2.40 Fixed Selling No

Unit Cost $10.40

Finished Goods Inventory (20,000 x $10.40) = $208,000

MCQ

A. Question 19: Single-product Company, Relationships

Notes:

26


B. Margin of Safety

1. The difference between actual (or budgeted) sales and the sales at the break-even point.

2. Total Sales – Break-Even Sales

Sales $1,015,000 Break-Even Sales (580,000) Margin of Safety $ 435,000

C. Contribution Margin Ratio: Contribution Margin / Sales (80% in this example)

Sales per Unit $120 100% Variable Costs Per Unit 24 20 Contribution Margin Per Unit $ 96 80%

27


BREAK-EVEN POINT

A. Break-Even Point: Point of sale where there is no profit or loss.

1. In Units = Total Fixed Costs / Contribution Margin per Unit

2. In Dollars = Fixed Expenses / Contribution Margin Ratio

3. Contribution Margin Ratio = Total Contribution Margin / Total Sales


Example: 4

Direct Materials per Unit $10 Sales Price per Unit $ 29Direct Labor per Unit 10 Total Fixed Factory OH $ 90,000Variable Factory OH per Unit 2 Total Fixed Selling Costs 30,000Variable Selling per Unit 1 Total Fixed Costs $120,000

Sales Price per Unit $29Less: Total Variable Costs per Unit ($22 + $1) 23Contribution Margin per Unit $ 6

Required: What is the break-even point ? In Units = ($90,000 + $30,000) / $6/unit = $120,000 / $6/unit = 20,000 units In Dollars = 20,000 units x $29/unit = $580,000

Required: How many units would this company have to sell for a $90,000 profit? In Units: ($120,000 + $90,000) / $6/unit = 35,000 units In Dollars: 35,000 x $29 = $1,015,000

A. Question 22: Rica, Break-Even Point in Units

Selling Price / Unit $20 DM + DL 300,000 Variable OH 40,000 Variable Selling 10,000 Variable Cost / Unit 350,000 / 50,000 = 7 CM / Unit $13

Break-Even Point = Total Fixed Costs / (CM / Unit) = 130,000 / 13 = 10,000

B. Question 23: Rica, Contribution Margin Ratio

Selling Price 20 100% Variable Costs 7 35 CM / Unit 13 65%

Break-Even Point = Fixed Costs / CM Ratio

Answer multiple choice questions 24-25 with Bob.

C. Question 24: Seahawk, Test-the-Answer Technique

Test “c” Test “d” CM / Unit (5 x 40%) 2.00 (6.25 x 40%) 2.50 Units Sold 200,000 200,000 CM 400,000 500,000 Fixed Costs 400,000 400,000 Breakeven -0- Profit 100,000

D. Quetion 25: Koby, Test-the-Answer Technique

Test “a” Test “d” Sales $600,000 $400,000 Variable Costs 450,000 300,000 CM $150,000 $100,000 Fixed Costs 60,000 60,000 Profit $ 90,000 $ 40,000

28


MCQ

29


CVP ANALYSIS

A. Cost-Volume-Profit Analysis: Only consider what changes if proposal is accepted


B. Question 26: Jordan Company, Special Order

Selling Price $23 Manufacturing Costs (16) Overtime ( 3) Variable Costs (19) CM / Unit $ 4 Profit increase ($4 x 40,000) $160,000

C. Question 27: Spencer Company, Special Order

Test “c” Test “a” Selling Price $ 10 $ 7 Variable Costs 6 6 CM / Unit $ 4 $ 1 Units 10,000 10,000 Increased profit $40,000 $10,000

D. Question 28: Cardinal Company, Relevant Costs

DM $ 4 DL 16 Variable OH 8 Fixed OH (Eliminated) 4 Cost to Make $32 $32 x 20,000 Units = $640,000

E. Question 29: Motor Company, Make or Buy

DM $ 20,000 DL 55,000 Variable OH 45,000 Fixed OH ($4 Eliminated x 10,000) 40,000 Cost to Make $160,000

10,000 x 18 $180,000 Rent (15,000) Cost to Buy $165,000

30


FIXED VS. VARIABLE COSTS

Example 5

Fixed Costs $10,000 Selling Price per unit $8.00 Variable Cost per unit $2.00

Notes:

One Unit 10,000 UnitsAmount Produced and Sold

Total Fixed Cost

Fixed Cost per Unit

Variable Cost per Unit

Total Variable Cost

Total Costs

Sales

Variable Cost / Sales

A. Incremental Analysis

1. Used for special orders and make-or-buy decisions.

2. Only concerned with the costs that are different between the two options.

3. Willing to accept any offer as long as



10,000 10,00010,000 1 2 2 2 20,00010,002 30,000 8 80,00025% 25%

31


STRATEGIC MANAGEMENT

A. Benefits

1. Vision of company’s future

2. Perception of important success factors

3. Perception of environmental changes

B. Strategic Management Model

1. Environmental Analysis: Identify factors that will impact future performance

a. External Environment

(1) General (societal) trends

(a) Aging of population

(b) Percent of baby boomers in a merket

(c) More single-person households

(d) More e-mail use

(e) More cell phone use

(2) Industry-specific trends: Concern over food additives

b. Internal Envoironment

(1) Corporate culture

(2) Corporate chain of command

(3) Corporate resources

Notes:

32


2. Strategy Development

a. Process

(1) Formulation of a long-term plan

(2) Seize advantage of opportunities

(3) Manage threats

(4) Define mission (and maybe vision)

b. Terminology

(1) Mission: Purpose of entity’s existence

(2) Vision: What the company seeks to become in the future

(3) Strategic Plan

(a) What is to be done?

(b) Who is to do it?

(c) When it is to be finished?

(d) How will it be measured?

c. Plans for expansion or growth (There are other types of plans, but Bob doesn’t discuss them in this video; he believes they are unlikely to be tested heavily)

(1) Growth

(a) Vertical: Assuming functions previously done by suppliers or disstributors

(b) Horizontal: Increasing market share within same industry

(2) Diversification

(a) Concentric: Expanding into a related industry

(b) Conglomerate: Expanding into a unrelated industry

3. Strategy Implementation: Developing programs, budgets, and procedures to implement the strategy

4. Evaluation & Control

a. Monitor strategy performance

b. Take corrective action as necessary

33


STATISTICAL METHODS

A. Regression Analysis: Study of relationship between variables

1. Simple: One dependent variable and one independent variable

2. Multiple: One dependent variable and more than one independent variable

B. Coefficient of correlation

1. Perfect positive correlation indeicated by +1

2. Perfect negative correlation indicated by –1

C. Expected Value: Sum of the possible outcomes weighted by the probability of occurrence of each outcome

Answer mulltiple choice questions 33-37

Notes:

34


MULTIPLE CHOICE QUESTIONS

1. Mart Co. adds materials at thebeginning of the process in Department M.The following information pertains toDepartment M’s work-in-process duringApril:

Work-in-process, April 1(60% complete as to conversion cost)Started in AprilCompletedWork-in-process, April 30(75% complete as to conversion cost)

Under the weighted-average method, theequivalent units for conversion cost area. 13,000.b. 12,500.c. 12,000.d. 10,900. (1487)

2. The following information pertains toLap Co.’s Palo Division for the month ofApril:

Beginning work-in-process

Started in AprilUnits completed

Ending work-in-process

All materials are added at the beginningof the process. Using the weighted-average method, the cost per equivalentunit for materials isa. $0.59.b. $0.55.c. $0.45.d. $0.43. (4645)

3. The Forming Department is the first ofa two-stage production process. Spoilage isidentified when the units have completedthe Forming process. Costs of spoiled unitsare assigned to units completed andtransferred to the second department in theperiod spoilage is identified. The followinginformation concerns Forming’s conversioncosts in May:

Beginning work-in-process(50% complete)

Units started during MaySpoilage–normalUnits completed & transferredEnding work-in-process(80% complete)

Using the weighted average method, whatwas Forming’s conversion cost transferredto the second production department?a. $59,850b. $64,125c. $67,500d. $71,250 (5789)

Units

1,50012,50010,000

4,000

Number Cost ofof units materials15,000

$ 5,50040,000 18,00042,500

12,500

ConversionUnits Costs

2,000 $ 10,0008,000 75,500

5007,000

2,500

35


6. In a job order cost system using pre-determined factory overhead rates, indirect materials are usually recorded initially as an increase ina. Work-in-process control.b. Factory overhead control.c. Factory overhead applied.d. Stores control. (2211)

7. In a job order cost system, the use of direct materials previously purchased usually is recorded as an increase ina. Work-in-process control.b. Factory overhead applied.c. Factory overhead control.d. Stores control. (2205)

8. In a traditional job order cost system, the issue of indirect materials to a produc-tion department increasesa. Stores control.b. Work-in-process control.c. Factory overhead control.d. Factory overhead applied. (4228)

9. In an activity-based costing system, cost reduction is accomplished by identifying and eliminating

4. Department A is the first stage of DaleCompany’s production cycle. The followinginformation is available for conversion costs for the month of April:

Work-in-process, beginning (60% complete)Started in AprilCompleted in April and transferredto Department BWork-in-process, ending (40% complete)

Under the FIFO method, the equivalent units for the conversion cost calculation area. 160,000.b. 162,000.c. 168,000.d. 180,000. (1499)

5. Alley Co. produces main products Kuland Ju. The process also yields by-product Bef. Net realizable value of by-product Befis subtracted from joint production cost of Kul and Ju. The following information pertains to production in July at a joint cost of $54,000:

If Alley uses the net realizable value method for allocating joint cost, how much of the joint cost should be allocated to product Kul?a. $13,500b. $14,286c. $20,000d. $33,333 (9216)

Units

10,000170,000

160,000

20,000

Additional Units Market cost afterProduct produced Value Split-offKul 1,000 $40,000 $ 0Ju 2,500 60,000 0 Bef 500 9,000 $ 5,000

Nonvalue-addingAll cost drivers activities

a. No Nob. Yes Yesc. No Yesd. Yes No (4550)

36


10. Baker Company had inventory at the beginning and end of its current year as follows:

During the year, Baker incurred the follow-ing costs and expenses:

12. Lab Corp. uses a standard cost system. Direct labor information for Product CER for the month of October is as follows:Beginning End

Raw materials $22,000 $30,000Work-in-process 40,000 48,000Finished goods 25,000 18,000

Raw Materials purchased $300,000Direct-labor cost 120,000Indirect factory labor 60,000Taxes and depreciation on factory building 20,000Taxes and depreciation on salesroom and office 15,000Sales’ salaries 40,000Office’s salaries 24,000Utilities (60% applicable to factory,

20% to salesroom, 20% to office) 50,000

Baker’s cost of goods sold for the year isa. $514,000b. $521,000c. $522,000d. $539,000 (9911)

11. Information on Kennedy Company’sdirect-material costs is as follows:

Standard unit price $ 3.60Actual quantity purchased 1,600Standard quantity allowed for actual production 1,450Material purchase price variance-favorable $ 240

What are the estimated per-unit cash dis-bursements for inventories in November?a. $3.06b. $3.11c. $3.45d. $3.75 (9911)

Beth Company’s budgeted fixed factory overhead costs are $50,000 per month plus a variable factory overhead rate of $4 per direct labor hour. The standard direct labor hours allowed for October production were 18,000. An analysis of the factory overhead indicates that, in October, Beth had an unfavorable budget (controllable) variance of $1,000 and a favorable volume variance of $500. Beth uses a two-way analysis of overhead variances.

13. The actual factory overhead incurred in October is?a. $121,000b. $122,000c. $122,500d. $123,000 (9911)

14. The applied factory overhead in October is?a. $121,000b. $122,000c. $122,500d. $123,000 (9911)

Standard rate $6.00 per hourActual rate paid $6.10 per hourStandard hours allowed for actual production 1,500Labor efficiency variance $600 unfavorable

What are the actual hours worked?a. 1,400b. 1,402c. 1,598d. 1,600 (9911)

Items 13 and 14 are based on the following:

50,000x60%=30,000+20,000+60,000

37


18. Using the variable costing method, which of the following costs are assigned to inventory?

19. A single-product company prepares income statements using both absorption and variable costing methods. Manu-facturing overhead cost applied per unit produced in Year 2 was the same as in Year 1. The Year 2 variable costing statement reported a profit whereas the Year 2 absorption costing statement reported a loss. The difference in reported income could be explained by units produced in Year 2 beinga. Less than units sold in Year 2.b. Less than the activity level used for

allocating overhead to the product.c. In excess of the activity level used for

allocating overhead to the product.d. In excess of units sold in Year 2.

(2553)


Maintenance expenses of Alfa company are to be analyzed for purposes of con-structing a flexible budget. Examination of past records disclosed the following costs and volume measures:

15. Using the high-low-point method of analysis, the estimated variable cost per machine hour isa. $ 1.25.b. $12.50.c. $ 0.80.d. $ 0.0 )1199( .8

16. Using the high-low technique, the estimated annual fixed cost of main-tenance expenditures isa. $447,360.b. $240,000.c. $230,400.d. $384,000. (9911)

17. Mat Co. estimated its material han-dling costs at two activity levels as follows:

What is the estimated cost for handling 75,000 kilos?a. $150,000b. $153,000c. $157,500d. $165,000 (4641)

Highest LowestCost per month $39,200 $32,000Machine hours 24,000 15.000

Kilos handled Cost 80,000 $160,000

60,000 132,000

Variable selling and Variable factory administrative costs overhead costsa. Yes Yesb. Yes Noc. No Nod. No Yes

(5458)

38



Sand Company has a calendar fiscal year and produces a single product that sells for $20 per unit. Sand uses an actual (historical) cost system. In the first year of operations, 100,000 units were produced and 80,000 units were sold. There was no work-in-process inventory at December 31. Manufacturing costs and selling and administrative expenses were as follows:

20. What is Sand’s operating income under the variable (direct) costing method? a. $228,000b. $420,000c. $468,000d. $660,000 (1478)

21. What is Sand’s finished goods inventory at December 31, under the absorption costing method?a. $160,000b. $208,000c. $220,000d. $248,000 (1479)

Items 22 and 23 are based on the following information pertaining to RicaCompany:

22. How much was Rica’s break-even point in number of units?a. 9,848b. 10,000c. 18,571

)1199(000,62 .d

23. What was Rica’s contribution margin ratio?a. 66%b. 65%c. 59%d. 35% (9911)

24. The Seahawk Company is planning to sell 200,000 units of Product B. The fixed costs are $400,000 and the variable costs are 60% of the selling price. In order to realize a profit of $100,000, the selling price per unit would have to bea. $3.75.b. $4.17.c. $5.00.d. $6.25 )1199(.

Fixed costs Variable costsRaw materials -- $4.00 per unit producedDirect labor -- 2.50 per unit producedFactory overhead $240,000 1.50 per unit producedSelling and administrative 140,000 2.00 per unit sold

Sales (50,000 units) $1,000,000Direct materials and direct labor 300,000Factory overhead:

V 000,04 elbairaF 000,07 dexi

Selling and general expenses:V 000,01 elbairaF 000,06 dexi

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27. Spencer Company’s regular selling price for its product is $10 per unit. Vari-able costs are $6 per unit. Fixed costs total $1 per unit based on 100,000 units, and remain unchanged within the relevant range of 50,000 units to total capacity of 200,000 units. After sales of 80,000 units were projected for the year, a special order was received for an additional 10,000 units. To increase its operating income by $10,000, what price per unit should Spencer charge for this special order?a. $ 7b. $ 8c. $10d. $11 (9911)

28. Cardinal Company needs 20,000 units of a certain part to use in its production cycle. The following information is available:

If Cardinal buys the part from Oriole instead of making it, Cardinal could not use the released facilities in another manufacturing facility. 60% of the fixed overhead applied will continue regardless of what decision is made. In deciding whether to make or buy this part, the total relevant costs to make the part area. $560,000.b. $640,000.c. $720,000.d. $760,000. (9911)

25. Koby Company has sales of $200,000 with variable expenses of $150,000, fixed expenses of $60,000 and an operating loss of $10,000. By how much would Koby have to increase its sales in order to achieve an operating income of 10% of sales?a. $400,000b. $251,000c. $231,000d. $200,000 (9911)

26. Jordan Company budgeted sales of 400,000 calculators at $40 per unit for the year. Variable manufacturing costs were budgeted at $16 per unit, and fixed manufacturing costs at $10 per unit. A special order offering to buy 40,000calculators for $23 each was received by Jordan in March. Jordan has sufficient plant capacity to manufacture the additional quantity; however, production would have to be done on an overtime basis at an estimated additional cost of $3 per calculator. Acceptance of the special order would not affect Jordan’s normal sales and no selling expenses would be incurred. What would be the effect on operating profit if the special order were accepted?a. $120,000 decreaseb. $160,000 increasec. $240,000 decreased. $280,000 increase (1455)

Cost to Cardinal to make the part:Direct materials $ 4D 61 robal tceri

Variable overhead 8 Fixed overhead applied 10Cost to buy the part from the

Oriole Company $36

$ 20,00055,00045,00070,000

$190,000

29. Motor Company manufactures 10,000 units of Part M-1 for use in its productionannually. The following costs are reported:

Direct materialsDirect laborVariable overheadFixed overhead

Valve company has offered to sell Motor10,000 units of Part M-1 for $18 per unit. IfMotor accepts the offer, some of thefacilities presently used to manufacture PartM-1 could be rented to a third party at anannual rental of $15,000. Additionally $4 per unit of the fixed overhead applied toPart M-1 would be totally eliminated.Should Motor accept Valve’s offer, andwhy?a.

b.

c.

d.

30. When production levels are expectedto increase within a relevant range, and aflexible budget is used, what effect wouldbe anticipated with respect to each of thefollowing per unit costs?

40


31. The diagram below is a cost-volume-profit chart.

At point A compared to point B, as apercentage of sales revenues

32. Break-even analysis assumes thatover the relevant range totala. Revenues are linear.b. Costs are unchanged.c. Fixed costs are nonlinear.d. Variable costs are nonlinear. (9227)

33. Which of the following generally isconsidered the least beneficial result ofstrategic management?a. Focus on the futureb. Perception of a changing environmentc. Vision for the entityd. Written strategic plan (7408)

No, because it would be $5,000 cheaper to make the part.Yes, because it would be $10,000 cheaper to buy the part.No, because it would be $15,000 cheaper to make the part.Yes, because it would be $25,000 cheaper to buy the part.

Fixed Variablea. Decrease Decreaseb. No change No changec. No change Decreased. Decrease No change (4551)

Variable costs are Fixed costs area. Greater Greaterb. Greater The samec. The same The samed. The same Greater (9234)

Y

X

AB

Dollars

Activity level

loss

profit

sales

T.C

F.C

41


37. A vendor offered Wyatt Co. $25,000compensation for losses resulting from faulty raw materials. Alternately, a lawyer offered to represent Wyatt in a lawsuit against the vendor for a $12,000 retainer and 50% of any award over $35,000. Possible court awards with their associated probabilities are:

Compared to accepting the vendor’s offer, the expected value for Wyatt to litigate the matter to verdict provides aa. $ 4,000 loss.b. $18,200 gain.c. $21,000 gain.d. $38,000 gain. (6925)

34. What is the typical link between twobusinesses being combined in a conglomerate diversification strategy?a. Customer baseb. Distribution networkc. Financiald. Managerial skillse. Technology (7409)

35. What strategy involves increasingmarket share in the same industry?a. Concentric growthb. Conglomerate growthc. Horizontal growthd. Synergy growthe. Vertical growth (7411)

36. Using regression analysis, FairfieldCo. graphed the following relationship of its cheapest product line’s sales with its customer’s income levels:

If there is a strong statistical relationship between the sales and customer’s income levels, which of the following numbers best represents the correlation coefficient for this relationship?a. –9.00b. –0.93c. +0.93d. + )7324(00.9

Sales$

Income levels increasing

Award Probability$75,000 0.6 0 0.4

[75,000-12,000-(75,000-35,000x50%)]=25,800

12,000x40%=(4,800)

21,000

25,000

-

>

42


UNOFFICIAL AICPA SOLUTIONS TO MULTIPLE CHOICE QUESTIONS

1. a 10. b 19. a 28. b2. d 11. c 20. b 29. a3. c 12. d 21. b 30. d4. b 13. d 22. b 31. d5. c 14. c 23. b 32. a6. d 15. c 24. d 33. d7. a 16. b 25. d 34. c8. c 17. b 26. b 35. c9. c 18. d 27. a 36. b 37. a

Documents

Cost & Managerial Accounting · 3. Step III: Calculate (Weighted Average) Unit Costs Costs Unit Beginning WIP Current Total EFU Cost Material $495,000 82,500 Conv ersion 8,18 750