f2 Revesion Notes by Ammar

8/6/2019 f2 Revesion Notes by Ammar

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Management Accounting

Prepared by AMMAR MUSHTAQ KHAN

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Dear students these revision notes which you are going to read may

have grammatical & spelling mistakes, if you find any one of them,please point out & let us know this will help us to recover & maintain

the notes in most suitable language boundaries as much as possible for

us.

As the user of these notes you can not copy, reissue or reprint it without

the permission of author. You are legally & ethically bound to take the

permission first before doing any such thing.

Thanks for your cooperation

AMMAR MUSHTAQ KHAN

[email protected]

0336-5586866


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Chapter chapter Page #

Introduction 3

One The nature & purpose of Management accounting 4

Two Types of cost & cost behaviour 7Three Business mathematics 10Four Ordering & accounting for inventory 11

Five Order quantities & reorder levels 14Six Accounting for labour 17

Seven Accounting for overheads 20

Eight Marginal & absorption costing 24Nine Relevant costing 32

Ten Dealing with limiting factors 34Eleven Job , batch & process costing 37Twelve Services & operation costing 48

Thirteen Budgeting 49

Fourteen Standard costing 52Fifteen Spreadsheet 58Sixteen Terms Dictionary 77

Seventeen Question bank 103Eighteen Test your knowledge 167


Cost Accounting Managerial Accounting

Cost Accounting

Cost Concepts andClassifications

Labor Overhead Costs Manufacturing Accounts Marginal costing &

Absorption Costing Other Costing Techniques Process Costing Stock Valuation

Managerial Accounting

Budget Costs Volume Profit

(CVP) Analysis Pricing Decisions Standard Costing &

Variance Analysis

Short Term Decisions Variances


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Chapter one 1

Level of planning

Strategic planning & control:

Formulate long-term objectives & plans. Information at this level is in

summaries form. (Directors level)

Tactical planning & control:

Make short term plan for the nest year. Information at this level is in

medium quantity (senior manager level)

Operational planning & control

Day to day planning & decision making, information is in expanded form

(all manager level)

Hierarchy of management tasks

Strategic planning & control:

Formulate long-term objectives &plans. Information at this level is in

summaries form. (Directors level)

Tactical planning & control:

Make short term plan for the next year.Information at this level is in mediumquantity (senior manager level)

Operational planning & control

Day to day planning & decision making,information is in expanded form (all managerlevel)

Controlling

Activities

Planning

Activities


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Responsibility accounting is based indemnifying individual parts of abusiness which responsibility of a single manager. Responsibility centre is

an individual part of a business whose manger has responsibility for its

performance

Cost centre: is a production or service location, function activity or item ofequipment whose costs are identified and recorded

Revenue centre: is a part of the organization that earns sales revenue.

Profit centre: a profit centre is a part of the business for which both thecosts incurred & revenues earned are identified.

Investment centre: managers of investment centre are responsible forinvestment decisions as well as decision affecting the cost & revenue.

Therefore mangers are accountable for profit & capital employed. The

performance measured in term of ROCE.

Cost/revenue profit investment

Centre centre centre

Managerial process of planning decision making & control

*) Planning involves establishing objectives & formulating relevant

strategies that can be used to achieve those objectives.

*) Decision making involve choosing the best plan from all the available

plans

*) Control involves receiving actual results compare with budgets; revise

the original objectives if necessary

ManagersAuthority

increases


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Difference between management accounting & financial accounting

Notes Management accounting Financial accounting

Information

produce for

Internal use External use

Purpose To aid planning, decision

making & control

To record the financial

performance in a period &

the financial position at the

end of the period.

Legal

requirement

none Limited company must

produce

Format Management choice According to accounting

standardNature of

information

Financial & non-financial Mostly financial

Time period Historical & forward looking Mainly an historical records


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Chapter Two 2

Classification of cost

Classification of cost

By Element By Nature By Behaviour By Function

Material Labour Expenses

Direct Indirect

Fixed

Semi-variable

Variable

Step-fixed

Production Non-production

Direct material

Direct expenses

Direct labour

Finance cost

Distribution cost

Selling cost

Administration cost

Fixed P.O.H

Variable P.O.H


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Cost behaviour

V.C in total V.C/unit F.C in total F.C/unit

Semi-V.C in total Semi-V.C /unit step-fixed cost

Cost behavior In total Per unit

Variable varies The same

Fixed The same varies Mixed (semi-variable) Varies Varies (often inversely)

The basic assumption is that cost behaviour shown in above graphs & table

only works in relevant range. Outside the relevant range of the activity

levels the total fixed cost or variable cost per unit may change so always

consider the relevant range of activity levels.

High/low method

(Use for analysis of cost into fixed & variable elements)

Step 1*Define the high & low activities (considered the benchmark)

Step 2*Calculate the difference between the high & low activities and thehigh & low cost, so the calculated cost divided by the calculated unit, you

got the variable cost per unit

Step 3* calculate the total fixed cost


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Cost equation

Y=a+b(x)A= fixed cost

B= variable cost per unit

X= number of unit (independent variable)

Y= total cost (dependent variable)

Cost object: a cost objects is any activity for which a separatemeasurement of cost is undertaken.

Cost unit: a cost unit is a unit of product or service in relation to whichcost are ascertained.

Cost centre: a cost centre is a production or service location, function,activity or item of equipment for which cost can be ascertained.

Cost card: all direct cost, production & non-production cost are broughttogether & recorded on a cost card.


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Chapter Four 4

Purchase requisition: When department requires new material a

purchase requisition is completed & sent to the purchasing department.

Purchase order: On the receipt of properly authorized requisition thepurchasing department will select a supplier & create an order on purchase

order form.

Material requisition notes: Are issued by production department. Theirpurpose is to authorize the store keeper to releases the goods which have

been requisitioned & to update the store record

Material returned notes: Are used to record any unused materials whichare returned to stores. They also used to update the store record.

Material transfer notes: Document the transfer of material from oneproduction department to another. They also used to update the store

record.

Purchase invoice: Bill of purchases sends by supplier.

GRN: Good receive notes used to enter the full detail of good received

GRN: A good delivery note is the notes that containing the full detail ofgoods send by the supplier.

Accounting for inventoryMaterial inventory account

Debit entries reflect an increasein inventory

Opening balance **

(Additions)

Purchase *Return to store *

Total ***

Credit entries reflect a decreasein inventory

(Withdrawals)

Direct material (W.I.P) *Indirect material (F.O.H) *Purchases return *

Obsolete items (I.S) *

Closing balance **

***


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Flow of cost inventory accounts

Raw material work in progress (WIP)

Cost of sales (COS) Finish goods (FG)

Inventory valuation methods are

FIFO: Materials prices are charge in the order of material were received.

LIFO: Materials prices are charge in the reverse order of material werereceived,

WEIGHTED AVERAGE COST: value all item of inventory and issue atan average price.

Perpetual inventory is the recording of inventory as they occur of receipt,issues & the resulting balances of individual items of inventory in either

quantity or quantity & value.

Periodic stock taking: involve checking the balance of every item ofinventory on the same date, usually at the end of an accounting period.

Continuous stock taking: involve counting & valuing selected item ofinventory on a rotating basis.

Opening balance+Purchases

Total

Direct materialusage

Ending balance

Total

Opening balance

Direct materialDirect labourDirect expensesProduction O.Hincurred

Total

Cost of goodmanufactured

Ending balance

Total

Cost of goodsold

Ending balance

Total

Opening balance

Cost of goodsmanufactured

Total

Ending balance

Total

Opening balance

Cost of goodsold

Total


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Chapter Five 5

Holding cost: costs associated with holding inventory are known as

holding costs. It include interested on capital tied up in inventory, cost ofstorage space, cost of insurances.

Ordering cost: The costs associated with placing the order are known asordering costs & include administrative cost & delivery cost

Cost type Fixed cost Variable cost

Interest on capital tied up ************ Variable holding cost

Cost of storage space Fixed holding cost

(Step fixed cost)

***********

Cost of insurance Fixed holding cost ***********

Administrative cost ************ Variable ordering cost

Delivery cost ************ Variable ordering cost

Stock out cost: costs associated with running out of inventory and theyinclude loss sales, loss of customers & reduce profit.

Objective of inventory control : is the to maintain the inventory at alevel where total cost of holding cost , ordering cost and the stock out costs

at a minimum.

EOQ: is the reorder quantity which minimizes the total cost associated withholding & ordering.

EOQ with discount:

If a quantity discount is accepted this will have the following effects

*) annual purchase price will decrease

*) annual holding cost will increase

*) annual ordering cost will decrease.

Steps to calculate:

*) calculated the EOQ ignoring the discount.

*) if EOQ is smaller then the minimum purchase quantity to obtain the bulk

discount, calculated the total for EOQ of the annual stock holding cost,

stock ordering cost and stock purchasing costs.

*) recalculate the total annual cost (sum of total purchasing, holding &

ordering cost) at the level of just enough to qualify for the bulk discount.


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To accept discount or not, compare the total annual cost at discount level

& total annual cost without discount.

Normal EOQ Discount

quantity one

Discount

quantity two

Purchase price Normal Deduct the

discount rate one

Deduct the

discount rate two

Holding cost EOQ/2 * holding

cost per unit

Quantity one / 2

* holding cost

per unit

Quantity two / 2

* holding cost

per unit

Ordering cost Annual

demand/EOQ *

ordering cost per

unit

Annual

demand/quantity

one * ordering

cost per unit

Annual

demand/quantity

two * ordering

cost per unittotal ********** ************* ************

Gradual replenishing of inventory :( refilling)The decision faced by organization that manufacture & store their own

products involving deciding weather to produce large batches at long

intervals or produce smaller batches at short intervals.

EBQ (economic batch quantity) model is primarily concerned with

determining the number of item that should have to produce in a batch atwhich machine setup cost & holding cost are at minimum level.

In the formula the D is an annual demand, Ch is a cost of holding per unit,

Co is a machine setup cost (replacing the ordering cost) R is an annual

replenishment rate (annual production rate).

In the EOQ inventory is replenished instantaneously where as here it is

replenished over a period of time. Its depending on the demand rate, part of

batch will be sold or used while the remainder is still being produced.

For the same size of batch (Q), the average inventory held in the EOQ model

(Q/2) is the greater than the average in this situation.

EOQ EBQ

Find Inventory quantity Buy from supplier Produce in batch

Total cost Holding + ordering Holding + machine setup


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Chapter Six 6

Direct labour cost Indirectlabour cost

Basic pay for basic hours ******

Overtime basic pay ******

Overtime-premium ******

Training ******

Sick pay ******

Idle time ****

Employers N.I.C ******

Time spend by direct workers doing

indirect jobs

******

Shift premium/ shift allowance ******

Bonus

Overtime premiums are treating as direct labour cost when it is thespecific request of customers because they want a job to be finished as soon

as possible.

Labour Account

Basic payDirect labour

Overtime premiumIndirect labour

Over time payment

DrBank/cash * CrW.I.P (direct labour) *Production over heads (indirect labour)

Indirect labour (basic pay) *Overtime premium *Shift premium *Sick pay *

Idle time *

Total ** Total **


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Remuneration methods

Time based systemsTotal wages =

(Hours worked * basic rate of pay per hour)

+

(Overtime hour worked * overtime premium per hour)

Piece work systemsTotal wages (unit produced * rate of pay per unit)

Incentives schemes

Halsey- the employee receives 50 % of the time saved

Bonus= time allowed time taken / 2 * time rate

Rowan- the proportion paid to the employee is bases on the ratio of thetime taken to the time allowed

Bonus=time taken/time allowed*time saved * time rate

Labour turnover

Number of leaver who require replacement / average number of employees *

100

Labour efficiency, production volume & capacity ratio

Labour efficiency ratio measures the efficiency of labour against the preset targets.

Labour production ratio measures the standard hour required for actualoutput with reference to the budgeted hours for that work.

Labour capacity ratios measures the number of hours spent activelyworking as a % of the total budgeted hours.


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Labour efficiency ratio = standard hour / actual hours * 100

Labour production ratio = standard hour / budgeted hour * 100 *

Labour capacity ratio = actual hour / budgeted hours * 100

Labour production ratio = Labour efficiency ratio * Labour capacity ratio

(Standard hours= standard time allowed * actual output)


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Chapter Seven 7

Fixed production overheads= indirect material + indirect labour +indirect expense

Goes to W.I.P Production overheads*) Variable production FOH

(Mostly direct charge to statement)

*) Fixed FOH(in absorption costing)

In absorption costing the fixed factory overhead are shared out between theunits of production. The absorption costing has the following way for the

sharing of production over head.

The Allocating the production overhead which is specifically related to

specific department

After allocation the process of apportionment will start, in which we haveto share out the overhead to cost centers (departments) by using the suitable

bases.

Expense

Direct Expense Indirect Expense

Allocation: charging overhead directly to thespecific department. Normally have $ sign in

question


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After apportionmentsome of the cost that was charges to the servicesdepartments. Now transfer that all cost to production department, the simple

trick is to transfer the all cost of that service department first, which gives

cost to its next service department too. & then the one who distribution its

cost only to production departments (if having only 2 service departments)

Reciprocal Re-Apportionmentmethod used where the services centersalso for each other so in this case transfer the cost of service cost center to

the production cost center using suitable basis until the service cost centers

cost turn into zero or near to zero.

Apportionment: if overhead relate with moredepartment then they must be apportioned(shared) between departments & use the suitable

fair base.

Re-Apportionment: service cost centers arenot directly involve in production , so the totalfixed production cost of the service costcenters share out between the production cost

centers using the suitable basis .

Reciprocal Re-Apportionment: this repeateddistribution method used where service cost centredo work for each other. Its required manyreapportionments until all cost shared about toproduction cost centers.


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Absorption rates

OAR = total production over head/total of absorption basisBudgeted OAR= budgeted total production over head/budgeted total ofabsorption basis

Departmental OAR= departmental total production over head/departmental total of absorption basis

Overhead absorbed= predetermined OAR * actual level of activity

Over or under absorbed= difference between actual overhead Vsoverhead absorbed

Journal & ledger entries for manufacturing overheads

Production overheads

The production overhead account acts as a collecting place for all the

indirect costs of a production process. All cost debited to this account, once

the amount of absorbed has be calculated they are transfer to the WIP

account, the difference will be the under or over absorbed, this is the

balancing figure and transferred to the over /under-absorption account &

ultimately transferred to income statement where it is written of (under-absorbed overheads) or increase profit (over absorbed overhead)

Working backwards (simple trick)

Actual overheads ****

Absorbed overheads (OAR * actual activity) ****

Over or (under) absorbed **** / (****)

Labour (actual) *Store (actual) *Expense (actual) *

Over absorption (if any) *

Balance figure

Total **

W.I.P (absorbed) *

Under absorption (if any) *

Balance figure

Total **


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Over/under absorption over heads

Cost card (total cost of one unit of product)

Production overheads *(Under absorption)

Total **

Or

Income statements *

Total **

Income statements *

Total **

Or

Production overheads *(Over absorption)

Total **

Direct material **Direct labour **Direct expense **

Prime cost ***Variable production overheads **

Marginal production cost ***

Fixed production overheads **

Total production cost ***

Non production overheads:

Administration **Selling **Distribution **

Total cost ***

Profit *

Sales price ****


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Chapter Eight 8

Cost Elements

Direct Material, Direct labour, Factory Overhead Cost

(Variable Cost) (Variable & Fixed Cost)

In absorption costing , fixed manufacturing overheads are absorbed intocost units. Thus stock is valued at absorption cost and fixed manufacturing

overheads are charged in the profit and loss account of the period in which

the units are sold.

In marginal costing, fixed manufacturing overheads are not absorbed intocost units, Stock is valued at marginal (or variable) cost and fixed

manufacturing overheads are treated as period costs and are charged in the

profit and loss account of the period in which the overheads are incurred.

(Under absorption costing stock will include variable and fixed overheads

whereas under marginal costing stock will only include variable overheads.)

Marginal cost is the accounting system in which the variable cost are

charged to cost units & fixed costs for the period are written off in full to the

income statement.

In absorption costing the fixed factory overhead are shared out between the

units of production.


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Absorption costing profit statement Marginal costing profit statement

Valuation of inventory

Under or over absorbed overheads

Marginal costis the accounting system in which the variable cost arecharged to cost units & fixed costs for the period are written off in full to the

income statement.

Contribution=sale price variable cost

Total contribution= contribution /unit * sales volume

Profit= total contribution - fixed over head

Sales *

Less cost of sales

(Valued at full production cost)Opening inventory *Variable cost of production *Fixed overhead absorbed *

*Less closing inventory (*)

(*)

*(Under)/over absorption (*) / *

Gross profit *Less non production costs (*)

Profit / (loss) (*) / *

Sales *

Less cost of sales

(Marginal production cost only)Opening inventory *Variable cost of production *Less closing inventory (*)

(*)

*

Less other variable cost (*)

Contribution *Less fixed cost (actually incurred) (*)

Profit / (loss) (*) / *

Opening & closing inventory arevalued at full production cost underabsorption costing

Opening & closing inventory arevalued at full marginal cost undermarginal costing

An adjustment for under or overabsorption of overhead is necessary inabsorption costing profit statement

No adjustment for under or overabsorption of overhead is need inmarginal costing profit statement. Theactual costs incurred are deducted fromcontribution earned.


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If stock levels are rising from opening to closing balance

Absorption Costing profit > Margin Costing profit

(More profit) (Less profit)

If stock levels are falling from opening to closing balance

Absorption Costing profit < Margin Costing profit

(Less profit) (More profit)

(Fixed costs carried forward are charged in this period, under absorption

costing)

If stock levels are the same

Absorption Costing profit = Margin Costing profit

(Same profit) (Same profit)

Reconciliation formula Rs.

Profit as per absorption costing system xxx

Add Opening stock @ fixed FOH rate at opening date xxx

Less Closing stock @ fixed FOH rate at closing date (xxx)

-------

Profit as per marginal costing system xxx

(The only difference between using absorption costing and marginal costing

as the basis of stock valuation is the treatment of fixed production costs.)

Arguments against absorption costing

In absorption costing the fixed costs do not change as a result of a change in

the level of activity.Therefore such costs cannot be related to production

and should not be included in the stock valuation


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Advantages of marginal costing Advantages of absorption costing

Contribution per unit is constant

unlike profit per unit which varies

with changes in sales volumes

Absorption costing includes the

element of fixed overheads in inventory

values in accordance with SSAP 9

There is no over or under

absorption of overheads

Analysis under/over absorption of

overhead is useful exercise in

controlling the cost.

Fixed over heads are period cost

& are charged in full to the

period under consideration

Is a best way of estimating job costs &

profit on jobs in small organizations

Marginal costing is useful in the

decision making processIt is simple to operate

Overheads According to SSAP 9

Overhead charges, if any, should be included in the cost valuation to the extent that is

appropriate having regard to recognised accounting practice and to the principle of

consistency.

The provisions of the Companies Act are reflected in generally accepted accounting

practice, SSAP9 (paragraphs 19 and 20 of Part 2 and paragraphs 1- 10 of Appendix 1).

Overheads are classified, under SSAP9 (paragraph 20 of Part 2), according to their

function, for example, production, selling or administration. Into which category a

particular expense falls and whether a cost is directly attributable to the production

process and must be included, or rather is an expense which may be included, will

depend on the precise facts.

Broadly, however:

Overhead expenses which vary directly with the volume of production areconsidered to be directly attributable' to the production process and should be

included.

The fact that an overhead accrues on a time basis is not in itself a reason for itsexclusion from the stock valuation (see paragraph 20 of Part 2 of SSAP9). But

generally the classification of such overheads is less certain.

Overheads accruing on a time basis may be more remote from the productionprocess. An accounts treatment that has consistently excluded such overheads

from a stock valuation may be within the range of generally accepted accounting

practice for the specific industry and may still be a valid basis in the particular

circumstances.


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Contribution to sales ratios & breakeven points

Contribution to sales ratio (P/V ratio)

Contribution to sales ratio per unit = contribution per unit / selling price

per unit.

Contribution to sales ratio in total = total contribution / total sell revenue

Breakeven pointis the point where revenue = cost, so the profit is zero orthe total contribution is equal to the total fixed cost.

Point in the term of number of unit sold = fixed cost / contribution per unit.

Point in the terms of sale revenue = fixed cost / contribution to sales

ratio.

Margin of safety & target profitThe margin of safety is the amounts by which anticipated sales (in units) can

fall below budget before a business make the loss. & the target profit is use

to find the amount of unit (or total sales) have to sale in order to earn the

certain level of profit.

Margin of safety as % of sales = budgeted sales breakeven sales /

budgeted sales * sales

Margin of safety in units = budgeted sales breakeven point sales

Sales volume to achieve the Target profit

= fixed cost + required profit (targeted contribution) /contribution per unit.


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Charts

Traditional Breakeven chart

Contribution Breakeven chart

Cost Sales revenue&Revenue total costIn $

Variable costs

Fixed costMargin ofSafety

Budgeted sales output in unitsBreakeven point

Cost Sales revenue& ProfitRevenueIn $ Total cost

ContributionFixedCost

Variable costs

Breakeven point output in units


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P/V chart

Breakeven chart usually show both cost & revenue over a certain level ofactivity. They do not highlight directly the amount of profit or losses at the

various level of activity. However, a P/V chart clearly identifies the net

profit or loss at different level of activity.

$Margin of safety

Profit

0 unitsSales

Breakeven point budgeted sales

Loss = fixed cost at zero sales activity

Loss


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Chapter Nine 9

Relevant costing

Decision making process involves making a choice between two or more

alternatives. Decisions will generally be based on taking the decision that

maximize the shareholder value so all the decisions will be taken using

relevant cost & revenues.

Relevant cost and revenues are those cost & revenues that change as a

direct result of a decision taken.Features:

They are future cost & revenue.

They are cash flows. They are incremental cost & revenues.

Relevant cost terms:

Differential costs are the differences in total cost or revenue between twoalternatives

Opportunity costis an important concept in decision making. It represents

the best alternative that is fore gone in taking the decision. The opportunitycost emphasizes that decision making is concerned with alternatives & that

the cost of taking one decision is the profit or contribution foregone by not

taking the next best alternative.

Avoidable costs are the specific cost associated with an activity that wouldbe avoided if that activity did not exist.

Non- Relevant costFollowing are non relevant costs:

Sunk costare the past cost or historic cost

Committed costs are the future cost that can not be avoided

Non cash flows costs are the costs which do not involve the flow of cash.

General fixed costs are usually not relevant to decision, but stepped fixedcosts are normally treated as relevant cost if it changes with the decision.

Net book values are not relevant cost because they are determined by

accounting conventions rather than by future cash flows

Variable cost normally assume as relevant cost unless examiner told.


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Relevant cost for Material Relevant cost of overheads

No

Yes

No

Yes

Yes No

Relevant cost for labour Relevant cost for Non-currentAssets

No Yes Yes No

No

Yes

Are materialsalready in stock?

Cost of purchase

Replacement

Will they be replaced?

Will they be used

for other purposes?

Contribution fromalternative use

Net Realizablevalue

Does sparecapacity exist?

Nil cost unlessovertime

worked orextra labourhired, whencash outlay

Can extraemployees be

hired?

Cost of hiring

Contribution from alternative products whichmust be abandoned to create spare capacity

Relevant cost ofoverheads

Only those overheadsthat vary as a direct

result of a decisiontaken are relevantoverheads.Mostly the variable costand the increase in fixedcost (step).

Does plant to bereplace at the end?

Replacementcost

Higher of

If sold=SalesProceeds

If not sold=Net cast inflowarising fromthe use of asset


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Chapter Ten 10

Dealing with limiting factor

A limiting factoris a factor that prevents a company from achieving thelevel of activity that it would like to.

Here using the contribution concept to address the problem of scare

Resources.

Scare resources are where one or more of the manufacturing inputsneeded to make a product are in short supply.

Production can also be affected by the number of units of a product that islikely to be demanded is a period (sales demand)

Optimal production plan where there is a single limiting factor

To make the plan the following steps are necessary

*) identify the limiting factor.

*) Contribution per unit of limiting factor or scare resources

(Contribution per limiting factor / units of limiting factor required per unit)

*) Compare which product / unit earning the high contribution per limiting

factor. & make it first until it meet the required quantity. Then move to the

next one.

Multi limiting factors linear programming

Linear programming involves

Formulating a linear programming problem

*) Define the unknowns (the variables)

*) Formulate the constraints (the limitations, the scare resource) ( there is a

non-negative constraint also which means you can not make the product in

negative amount so there fore each variable be greater than or equal to

zero)

*) Formulate the objective function (maximize the profit or minimize the

cost)


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Graphic solution

Steps are following

*) define the unknowns (the variable that need to be determined)

*) formulate the constraints (suppose x=0 find y then suppose y=0 & find x)

*) formulate the objective function.

*) graph the constraint and objective function.

*) Determine the optimal solution to the problem by reading the graph. By

contribution earn at each point or by using contribution line.

Feasible region is OABCD. Feasible region is a region in which all the constraints can

deal effectively & the maximum profit can be attained from the combination of productslying in this region.

YUnits

B C

A Sales constraint

Variable A

Variable B

0 units D X

Contribution line:The contribution line is draw just for the purpose of knowing the slope of the line.My simple general trick To know the highest contribution at which combination, is tomove the imaginary contribution line to upward (for maximization of profit) the mostouter point of feasible region mostly give the highest contribution, be remember thatisolated or one product combination cant give (mostly) the highest contribution. (Oneproduct combinations are at the horizontal or vertical axis joining points)


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Algebraic solution

Make the equations of constraints.&

Solve the equations*) Remove the one variable by multiplying the whole equation with suitable

number.

*) obtain the value of other variable either by multiplying or dividing the

amount.

*) put the value of other variable in the equation.


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Chapter Eleven 11

Job, Batch and Process costing.

Specific ordercosting is the costing system used when the work done by anorganization consists of separately identifiable jobs or batches.

Continuous costing is the costing method used when goods or services areproduced as a direct result of sequence of continuous operations or

processes.

Job costing is a form of specific order costing it is used when a customerorder specific job to be done. Each job is priced separately & each job is

unique.Aim is to identify the cost associated with completing the orderIndividual jobs are given a unique job number.Job cost sheet or job card used for recording the cost. Selling prices calculated by adding the profit margin to the cost of

job.

Batch costing is a form of specific order costing which is similar to jobcosting

With in Each batch are a number of identical units but each batch willbe different.Each batch has separate batch number. Cost separately measured for each batch.After completion the cost per unit is found by

= total production cost of batch / number of units in batch

Batch costing is common in the engineering components industry &manufacturing industries.

The selling prices of batch can be calculated in the say way as theselling price of job.

Production costing

Process costingJob costing Batch costing

Continuouscosting

Specific order

costing


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Process costing is the costing method used when mass production of manyidentical products takes place. For example Production of bars of

chocolates, tins of paints.

All products in the process are identical & indistinguishable.Normally average cost per unit is calculated for each processAverage cost per unit = cost of the production / expected or normal

output

Normally in process costing Output of one process is the input of thenext process until it becomes finish product.

Closing W.I.P found in process costing. This become opening WIP innext period.

Profit calculation for job & batch costing

Difference between the sale price & total cost is the profit.

Profit Mark up expresses profit as a % of the total production cost of theproduct. (Multiply the cost with 100+ % you get the sale price)

Profit margin expresses profit as a % of the selling price of the product.(Divide the cost by 100-% you get the sale price of the product)(net profit on

sales)

Process costingThe details of process costs and units are recorded is a process account

which shows the material, labour & overhead input to the process & the

material output at the end of the process

Markup 20%

Cost =100% Profit = 20%Cost = 80%

Margin 20%

Profit =20%

Sales price =120% Sales price =100%


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Process account # 1

Process account # 2

Average cost per unit = cost of production / expected or normal output

Process account with losses and gains

Normal losses some time in process the Total input may be differ from thetotal output. This is quite normal and usually happens when there are losses

or gains in the process.Losses may occur due to evaporation or wastage of materials & this may be

an expectedpart of the process.

Losses may sometimes be sold & generate revenue which is generally

referred to asscrap proceeds or scrape value.

Normal loss is the loss that is expected in a process & it is often expressed

as a percentage of the materials input to the process.

Description units $ description units $

Material *** ****Direct labour ****Departmental overhead ****

Out put transferred to *** ****Process 2

Total *** **** *** ****


Input transferred fromProcess 1 *** ****

Additional material ****Direct labour ****Departmental O.H ****

Out put transfer toProcess 3 *** ****

Total *** **** *** ****


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Process costing with normal lossAverage cost per unit = total cost of input / (units input-normal loss)

Process costing with normal loss & scrap valueAverage cost per unit =

Total cost of input - scrap value of normal loss / (units input-normal loss)

Process costing with normal loss & scrap

Scrap account

Abnormal losses & gains

Abnormal losses & gains are unexpected or different from the expected loss& gains.

The cost of abnormal losses & gains arenot absorbedinto the cost of good

output but are shown as the losses & gains in the process account.

Abnormal loss & gain units are valuedatthe same cost as the units of

goods output.


Material *** **** Normal loss ** ***Direct labour ****Departmental overhead ****

Out put transferred to *** ****Next Process account

Total *** **** *** ****

Des unit $ des unit $

Process account ** ***Cash ***

Total ** *** ***


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Approach:

1)Draw process account- enter inputs (units & values)

2)Enter the normal loss (units & value, if any)3)Enter the good output (Units only)4)Balance the units, the balancing figure is the abnormal loss or gain.5) Calculate the average cost per unit. (Formula)6) Value the normal loss at the scrap value7) Value the good output & abnormal loss or gain at this average

cost/unit.

Process accounts

Abnormal gain & losses account

Scrap value

Des units $ des units $

Material *** **** normal loss ** ***Labour ****Departmental overheads **** abnormal loss (balancing) ** ***

Transfer to next *** ****

Total *** **** *** ****


Process accountNormal loss ***Abnormal gain or loss ***

Cash (units * price) ****

Total *** **** *** ****


Process account ** *** scrap (units * average cost) ***

Income statement (loss) ***

Total *** **** *** ****


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42

WIP & EU (Ending work in progress & equivalent units)

At the end of accounting period there may be some unit that have entered a

production process but the process has not been completed these units are

called closing WIP units.

If we assume that there is no opening WIP, then the output at the end of a

period will consist of the following.

Fully- processed units.

Part- processed units (WIP)

It would not be fair to allocate a full unit cost to the part-processed units

and so we need to use the concept of EUs which spreads out the process costof a period fairly between the fully-processed & part-processed units.

Equivalent units

Basic concept is to express the part-processed units as a proportion of fully-

processed units.

Such as if 100 units are 50% completed so we can say that these effectively

equal to 50 fully complete units.

Average cost per EU = cost incurred / EU

Material= mostly added at the start of the process. So this means that

material cost should be spread all over units.

Labour & expenses (conversion cost) = add with the process. So this means

that conversion cost should be spread over EU.

Statement of EU

Description Out put Materials ConversionUnits % EUs % EUs

Fully processed units **** 100% full units 100% full unitsWIP **** 100% full units % EU

Total units ******* ******

Cost cost of material conversion cost

Cost per EU (cost/EU) cost material/EU conversion/EU


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43

Weighted average method

Process account

Value of finish goods

Value of W.I.P goods

Material cost

Conversion

Cost

ConversionCost

Material cost

EU * material/unit

EU * conversion/unit

EU * material/unit

EU * conversion/unit

Opening W.I.P

Weighted average method FIFO method

Over all average cost/unit = Opening inventory value (+) Current costs


Opening W.I.P *** **** Normal loss ** ***Material *** ****Labour **** abnormal loss (balancing) ** ***Departmental overheads ****

Transfer to next *** ****Ending W.I.P *** ****

Total *** **** *** ****


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44

Statement of EU

Value of finish goods & ending WIP calculate as did above.

FIFO method

Opening WIP

Net Current production cost (after on opening)


Fully processed units **** 100% full units 100% full unitsWIP **** 100% full units % EU

Total units ******* ******

Total cost of Total cost ofCost (opening + current) material conversion


Assumption: opening WIP units are completed first.

Finish goodsCompleted incurrent year

Ending WIPAt year End

Cost ofOpening WIP

+Current

period cost

Current year Finish goodsStarted & ended in current year

Carry forward tonext year


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45

Process account

Statement of EU


Opening W.I.P *** **** Normal loss ** ***

Material *** ****Labour **** abnormal loss (balancing) ** ***Departmental overheads ****

Transfer to next *** ****Ending W.I.P *** ****

Total *** **** *** ****


Opening WIP **** 100% EU % EUFully processed units **** 100% EU 100% EUEnding WIP **** 100% EU % EU

Total units ******* ******Total cost of Total cost of

Cost (opening + current) material conversion


When abnormal losses occur with in the process then the EU must be adjusted.


Fully processed units **** 100% EU 100% EUAbnormal loss **** 100% EU % EU

Total units ******* ******

Total cost of Total cost ofCost (opening + current) material conversion



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46

Joint & by products

Sometime Process often produce morethen one product .these addition productsmay be describe as joint product or by

product

Joint products:Joint products are both main products.

FeaturesHigh saleable value of both products.Normally both are equally important.

By-products:One is main product & the by productsare incidental to main products.

FeaturesSecondary product.Relatively low sale value

Material

cost

Conversion

cost

Joint

Process

Split-off

Point

ProductA

+ Costafter split

ProductB

+ Costafter split

ProductC

+ Costafter split

Pre-

separation

cost,

Common

cost,

Joint cost

Apportioned the

joint cost.

Basis

Sales valueUnits produce

NRV

By-product does not pick up a

share of the cost.

If the sales valueof by-product isknown at split-off point.

If the sales valueof by-product isnot-known atsplit-off point.

Sales value of

the by product

at the split-off

point is treated

as reduction in

cost instead of

an income.

Just like

normal loss.

Value become

known after the

some

processing

activities then

the net income

of the by

product is used

to reduce the

costs of the

process.

Net income =Sales value -- Further processing costs.

Treatments


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47

Process account for the joint products & by-products

Treatment of products

Joint products= normal products

By-products=normal loss

Material/EU= material cost - scrap value-sales value of by - product / EU

Good output= opening unit + input units normal loss by-product

abnormal loss

Abnormal loss= good output normal loss by-product


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48

Chapter Twelve 12

Service costing

Service costing is used when the organization or department provides aservice.

Service product

Intangible(performance) Tangible (goods)

Highly variable (Human involvement) Relatively Standardized

Produce & consume can not inspect in

advance of receiving it.

Can inspect & check before

receiving the product.

It Can not be stored Products can store.

Cost unit

Single cost unit is more appropriate if a service is a function of the one

variable. (Hour worked, Meal served)

Composite cost unit is more appropriate if a service is a function of the two

variables. (Tonne-miles, patient-day)

Cost per service unit = total cost for providing the service / service cost unit.

Service cost analysis

If the organization in the same service industry use the same service cost

units then comparisons between the companies can be made easily.

Simple trick

Calculate the cost of each element of the service to the total cost in %.Calculate per unit cost, individually & collectively.


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49

Chapter thirteen 13

Budgeting

BudgetingA budget is a quantitative expression ofplan of an action prepared inadvance of

the period to which it relates.

Planning for the futureIn line with the objective

of the organization

Controlling costsComparing plan Vs

budgeted

CoordinationManagers work for came

common goal.

CommunicationCommunicate the targets

MotivationBudget encourage when

they beat the target.

Bonuses are offered

EvaluationJudging the performance

of mangers.

AuthorizationAct as a Form of

authorization of

expenditure.

Budgetary control

Budget committee isformed.Person involve in

preparation of budget.

Budget manual isproduced.An instruction,

responsibility, charts

setting.

Limiting factor

identified.Known as principal budget

factor

Final steps*) Initial budget is

prepared.

*) Initial budget review &

integrated in principal

budget.

*) Make adjustments.

*) Budgets are reviewed

regularly.

Fixed budgetReport in which

comparing the original

budget against the actual

results.Flexible budgetBudget at different levels

of activities such as 70%,

90% or 110% of original

budget.

Flexed budgetsIs a budget which

recognizes different cost

behaviour pattern & is

designed to change as the

volume of activity changes

(actual activity level).

Variance is the difference

between actual Vs

budgeted

Total variance is the

combination ofvolume &expenditure variance.

The purpose of budget

changes with the

nature of organization

but the main aims of

the budgeting are as

follow.

Before starting the

budgeting process the

long-term objective

must be define first so

that the budgets

prepared are working

toward the goal of

business

Comparing the plan of

the budget with the

actual result &

investigating any

significant difference

between the two.

Stages of budgetPurpose of budgeting

Budget slack:It is deliberate

over-estimation

of cost orunder-

estimation of

revenue, which

make it easier

to achieve the

targets.


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50

Types of

budget

By function

Production Sales MaterialLabourOverheads

Periodic:Its a budget for the year ahead (or budget

period) fixed in the term of time. After the end

of year new budgetwill prepare.

Continuous: (rolling budget)Budget is prepared for a year ahead & is

updated regularly by adding further accountingperiod when the first accounting period expired

By Time

Material purchases

budget= material usage budget+

closing inventory

opening inventory

Material usage budget=

Production budget * price

per unit (kg)

Fixed overhead:Not changes with the

level of activity in total

(with in relevant range)

Variable overheadsChanges with the level

of activity.

Labour budget= Labour hour * rate/hourUnits sales* sale price/unit

Budget production

=Forecast sales + closing

inventory opening

inventory of finish goods.

Principal budget factor: is a factor thatlimits the activities of an undertaking.

Variance

Total variance is the difference between fixed budget & actual result.

Volume variance:

Difference in cost due to

changes in volume

(activity). (fixed & flexible

budgeted figures )

Expenditure variance:

Difference in cost due to

actual expenditure

differing from fixed budget

figures.

Other:Changes according to

the nature of business


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51

Sales budget

Factory overheads

Production budget

Raw material

Budgeted

balance sheet

Cash budget

Budgeted

income

statement

Capital

expenditure

budget

Selling &distributionbudget

General &administrativebudget

Cost of good

sold budget

Labour

Master budgets


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52

Chapter fourteen 14

Standard costingA standard costis the planned unitcost of a product or service. Use as

a target cost,Use for planning, variance

calculations,

Basic standard

Long term

standards,

Remain

unchanged,Use to show

trend,

Least useful

Ideal standards

Based on perfect

operating

conditions

(No wastage, noidle time, no

stoppages)

Attainable

standards

Based on

efficient

operatingconditions,

mostly used,

Included

allowances,

Bases on high

performance

level.

Current

standards

Based on current

level of activity

in term ofallowances,

Improvement

chances are very

low


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53

Variance

Materialcost

variance

Overheadscost

variance

Labourcost

variance

EfficiencyVariance

Ratevariance

Usagevariance

PriceVariance

Idle capacity varianceActual hour worked * S.Rate

VSBudgeted cost for actual hours

worked (activity)

SalesVariance

ExpenditureVariance EfficiencyVariance VolumevarianceExpenditureVariance

Fixedoverheadsvariance

Variableoverheadsvariance

EfficiencyVariance

CapacityVariance

SalesVolumeVariance

SalesPrice

Variance

ControllableVariance

Actual cost

Vs

Attainable hours

* S.Rate


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54

Sales variance

Under absorption costing

Actual quantity * actual price

Actual quantity * standard price

Actual quantity * profit

Budgeted quantity * profit

Under Marginal costing

Actual quantity * actual price

Actual quantity * standard price

Actual quantity * contribution

Budgeted quantity * contribution

Material variance

Actual quantity * actual price = actual cost

Actual quantity * S.R =expected cost(For actual Q)

S.Q * S.R * Actual units = flexed cost

PriceVariance

VolumeVariance

PriceVariance

VolumeVariance

Reasons

Price varianceUnplanned prices

increase or

decreases

Volume VarianceUnexpected

Fall or raise in

demand of

product.

Production

difficulty.

PriceVariance

UsageVariance

TotalmaterialVariance

Usage variance:Quantifying the effect on profit of using

different quantity of material from

expectedfor the actual productionachieved

Reasons:Higher or lower incidence of scrap.

Change in product design.

Substitution (higher or lower

wastage)

Price variance:Analysis weather the companypaidmore

or less than expectedfor materials.

Reasons:Supplies from different sources,

Unexpected prices increases,

Change in quantity discounted,

substitution.


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55

Labour variance

Actual Hours * actual Rate = actual cost

Actual Hours * S.R =expected cost(For actual H)

S.H * S.R * Actual units = flexed cost

Variable Overhead variance

Actual Hours * actual Rate = actual cost

Actual Hours * S.R =expected cost(For actual H)

S.H * S.R * Actual units = flexed cost

EfficiencyVariance

TotalLabour

Variance

Efficiency variance:Analysis weather the company used

more or less than expected for Labourexpected.

Reasons:Changes in working conditions.

Learning effect.

Staff training, incentive schemes.

Substitution of Labour.

Rate variance:Analysis weather the companypaidmoreor less than expectedfor Labour.

Reasons:An Unexpected notional wage award.

Overtime different from plan.

Substitution the Labour.

Rate

Variance

EfficiencyVariance

TotalvariableoverheadVariance

Efficiency variance:

Working more or fewer hours thanexpected for the actual production.

Reasons:Changing in working method.

Learning effect.

Incentive schemes.

Substitution of Labour.

Expenditure variance:

The variable overhead cost per hour wasdifferent to that expected.

Reasons:Incorrect budgeting.

Overheads calculations have mistakes.

ExpenditureVariance


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56

Fixed overhead variance

Actual & expected fixed overhead do not change when there is change in the level of

activity however the effect on profit depend upon weather a marginal or absorptioncosting system is being used.

Fixed overhead (both costing)

Actual expenditure

Budget expenditure

S. Fixed OA Rate * Actual unit

Volume variance

Explaining why the level of activity was different from that budgeted

Budgeted expenditure

Actual hours * FOAR per hour

S.H * S.FOAR for actual production

Expenditure varianceunder marginal &absorption costing

Volume variance isonly for absorptioncosting.

Total varianceIn marginal

costing the

expenditure

variance = total

variance

In absorption

costing the total

variance is = to

the combination of

expenditure &

efficiency

variances.

Capacity variance measure weatherworkforce worked more or fewer

hours than the budgeted for the period.

Efficiency variance measures weatherthe workforce took more or less tilethan the expected in producing theiroutput for the period.

Remember:Over/under absorption of overhead are due to over or under

absorption of overhead on the level of activity .its showing that the

volume variance can arise in absorption costing.

Fixed overhead total variance in an absorption costing is the same as

any under /over absorption of over head (actual VS actual units* OAR)

In volume variance we think reverse about the variances, as the

favorable consider here adverse & vise versa.

Reasons:Expenditure variance: changes in fixed overheads, seasonal differenceVolume variance: changing in production, changing in productivity, lost productionthrough strikes.


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57

Reconciliation statement

Note *The sales volume variance is calculated using the standard contribution per unit.

There is no fixed overhead volume variance (and therefore capacity & efficiency

variance) in the marginal costing operating statements.

Interrelationships between varianceVariance may Move in same direction, opposite direction, single or combined.

If supplies of a specified material are not available, this may lead to a favorable price

variance but an adverse usage variance, an adverse fixed overhead volume variance and

an adverse sales volume variance.

A new improved machine become available which causes an adverse fixed overhead

expenditure variance but favorable wages efficiency & fixed overhead volume variance.

Workers try to improve the productivity cause the favorable Labour efficiency variance &

may be the adverse material usage variance

Operation statement (in absorption costing ) F A $Budgeted profit

Sales volume variance (using profit per unit) *Standard profit on actual salesSales price variance

****Cost variance

Material price

Material usage

Labour rate

Labour efficiency

Variable overhead rate

Variable overhead efficiency

Fixed overhead volume -production

Fixed overhead expenditure-production

Fixed overhead expenditure- non production * *

****Total ****

Actual profit ****


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58

The Microsoft Excel Window

The Title Bar

This lesson will familiarize you with the Microsoft Excel screen. You will start with the Title bar,

which is located at the very top of the screen. On the Title bar, Microsoft Excel displays the name

of the workbook you are currently using. At the top of your screen, you should see "Microsoft

Excel - Book1" or a similar name.

The Menu Bar

The Menu bar is directly below the Title bar. The menu begins with the word File and continues

with Edit, View, Insert, Format, Tools, Data, Window, and Help. You use a menu to give

instructions to the software. Point with your mouse to a menu option and click the left mouse

button. A drop-down menu opens. You can now use the left and right arrow keys on your

keyboard to move left and right across the Menu bar. You can use the up and down arrow keys to

move up and down the drop-down menu. To choose an option, highlight the item on the drop-down menu and press Enter. An ellipse after a menu item signifies additional options; if you

choose that option, a dialog box opens.

Do the following exercise, which demonstrates using the Microsoft Excel menu bar.

1. Point to the word File, which is located on the Menu bar.2. Click your left mouse button.3. Press the right arrow key until Help is highlighted.4. Press the left arrow key until Format is highlighted.5. Press the down arrow key until Style is highlighted. Press the up arrow key until Cells is

highlighted.

6. Press Enter to choose the Cells menu option.7. Point to Cancel and click the left mouse button to close the dialog box.


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612. Click the left mouse button. A drop-down menu opens.3. On the drop-down menu, if Status Bar has a check mark next to it, it is turned on. Press

the Esc key to close the drop-down menu.

4. If Status Bar does not have a check mark next to it, press the down arrow key until StatusBar is highlighted; then press Enter. The Status bar should now appear at the bottom of

the screen.

Notice the word "Ready" on the Status bar at the lower left side of the screen. The word "Ready"

tells you that Excel is in the Ready mode and awaiting your next command. Other indicators

appear on the Status bar in the lower right corner of the screen. Here are some examples:

The Num Lock key is a toggle key. Pressing it turns the numeric keypad on and off. You can use

the numeric keypad to enter numbers as if you were using a calculator. The letters "NUM" on the

Status bar in the lower right corner of the screen indicate that the numeric keypad is on.

Press the Num Lock key several times and note how the indicator located on the Statusbar changes.

The Caps Lock key is also a toggle key. Pressing it turns the caps function on and off. When the

caps function is on, your entry appears in capital letters.

Press the Cap Lock key several times and note how the indicator located on the Statusbar changes.

Other functions that appear on the Status bar are Scroll Lock and End. Scroll Lock and End are

also toggle keys. Pressing the key toggles the function between on and off. Scroll Lock causes the

movement keys to move the window without moving the cell pointer. End lets you jump around

the screen. We will discuss both of these later in more detail.

Make sure the Scroll Lock and End indicators are off and complete the following exercises.

The Down Arrow Key

You can use the down arrow key to move downward one cell at a time.

1. Press the down arrow key several times.2. Note that the cursor moves downward one cell at a time.

The Up Arrow Key

You can use the Up Arrow key to move upward one cell at a time.

1. Press the up arrow key several times.2. Note that the cursor moves upward one cell at a time.

The Tab Key

You can use the Tab key to move across the page to the right, one cell at a time.

1. Move to cell A1.2. Press the Tab key several times.

3. Note that the cursor moves to the right one cell at a time.


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64Selecting Cells

If you wish to perform a function on a group of cells, you must first select those cells by

highlighting them. To highlight cells A1 to E1:

1. Place the cursor in cell A1.2. Press the F8 key. This anchors the cursor.3. Note that "EXT" appears on the Status bar in the lower right corner of the screen. You

are in the Extend mode.

4. Click in cell E7. Cells A1 to E7 should now be highlighted.

5. Press Esc and click anywhere on the worksheet to clear the highlighting.

Alternative Method: Selecting Cells by Dragging

You can also highlight an area by holding down the left mouse button and dragging the mouse

over the area. In addition, you can select noncontiguous areas of the worksheet by doing the

following:

1. Place the cursor in cell A1.2. Hold down the Ctrl key. Do not release it until you are told. Holding down the Ctrl key

enables you to select noncontiguous areas of the worksheet.

3. Press the left mouse button.

4. While holding down the left mouse button, use the mouse to move from cell A1 to E7.5. Continue to hold down the Ctrl key, but release the left mouse button.6. Using the mouse, place the cursor in cell G8.7. Press the left mouse button.8. While holding down the left mouse button, move to cell I17. Release the left mouse

button.

9. Release the Ctrl key. Cells A1 to E7 and cells G8 to I17 are highlighted.10.Press Esc and click anywhere on the worksheet to remove the highlighting.

Entering Data

In this lesson, you are going to learn how to enter data into your worksheet. First, you place the

cursor in the cell in which you would like to enter data. Then you type the data and press Enter.


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651. Place the cursor in cell A1.2. TypeJohn Jordan.3. The Backspace key erases one character at a time. Erase "Jordan" by pressing the

backspace key until Jordan is erased.

4. Press Enter. The name "John" should appear in cell A1.

Editing a Cell

After you enter data into a cell, you can edit it by pressing F2 while you are in the cell you wish

to edit.

1. Move the cursor to cell A1.2. Press F2.3. Change "John" to "Jones."4. Use the backspace key to delete the "n" and the "h."5. Typenes.6.

Press Enter.

Alternate Method: Editing a Cell by Using the Formula Bar

You can also edit the cell by using the Formula bar. You can change "Jones" to "Joker" as

follows:

1. Move the cursor to cell A1.2. Click in the formula area of the Formula bar.


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66

3. Use the backspace key to erase the "s," "e," and "n."4. Typeker.5. Press Enter.

Alternate Method: Editing a Cell by Double-Clicking in the Cell

You can change "Joker" to "Johnson" as follows:

1. Move the cursor to cell A1.2. Double-click in cell A1.3. Press the End key. Your cursor is now at the end of your text.4. Use the backspace to erase "r," "e," and "k."5. Typehnson.6. Press Enter.

Changing a Cell Entry

Typing in a cell while you are in the Ready mode replaces the old cell entry with the newinformation you type.


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68The number 100 appears in cell B1 as a numeric value. You can perform mathematical

calculations using this cell entry. Note that by default the number is right-aligned.

Enter a value:

1. Move the cursor to cell C1.2. Type '100.3. Press Enter.

The number 100 appears in cell C1 as a label. Note that by default the cell entry is left-aligned

and a green triangle appears in the upper left corner of the cell.

Smart Tags

When you make an entry that Microsoft Excel believes you may want to change, a smart tag

appears. Smart tags give you the opportunity to make changes easily. Cells with smart tag in

them appear with a green triangle in the upper left corner. When you place your cursor in thecell, the Trace Error icon appears. Click the Trace Error icon and options appear. When you

made your entry in cell C1 in the previous section, a smart tag should have appeared.

1. Move to cell C1.2. Click the Trace Error icon. An options list appears. You can convert the label to a

number, obtain help, ignore the error etc.

Saving a File

This is the end of Lesson1. To save your file:

1. Choose File > Save from the menu.2. Go to the directory in which you want to save your file.3. Type lesson1 in the File Name field.4. Click Save.

Numbers and Mathematical Calculations

Microsoft Excel has many functions that you can use. Functions allow you to quickly and easily

find an average, the highest number, the lowest number, a count of the number of items in a list,

and make many other useful calculations.

Reference Operators

Reference operators refer to a cell or a group of cells. There are two types of reference

operators, range and union.

A range reference refers to all the cells between and including the reference. A range reference

consists of two cell addresses separated by a colon. The reference A1:A3 includes cells A1, A2,

and A3. The reference A1:C3 includes A1, A2, A3, B1, B2, B3, C1, C2, and C3.

A union reference includes two or more references. A union reference consists of two or more cell

addresses separated by a comma. The reference A7,B8,C9 refers to cells A7, B8, and C9.


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69Functions

Microsoft Excel has a set of prewritten formulas called functions. Functions differ from regular

formulas in that you supply the value but not the operators, such as +, -, *, or /. For example, you

can use the SUM function to add. When using a function, remember the following:

Use an equal sign to begin a formula.

Specify the function name.

Enclose arguments within parentheses.

Use a comma to separate arguments.

Here is an example of a function:

=SUM(2,13,A1,B27)

In this function:

The equal sign begins the function.

SUM is the name of the function.

2, 13, A1, and B27 are the arguments.

Parentheses enclose the arguments.

A comma separates the arguments.

The SUM function adds the arguments together. In the exercises that follow, we will look at

various functions.

Typing a Function

1. Open Microsoft Excel.2. Type 12 in cell B1.3. Press Enter.4. Type27in cell B2.

5. Press Enter.6. Type24 in cell B3.7. Press Enter.8. Type =SUM(B1:B3) in cell A4.9. Press Enter. Microsoft Excel sums cells B1 to B3.

Alternate Method: Entering a Function by Using the Menu

1. Type 150 in cell C1.2. Press Enter.3. Type 85 in cell C2.4. Press Enter.

5. Type 65 in cell C3.


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706. Press Enter. Your cursor should be in cell C4.7. Choose Insert > Function from the menu.8. Choose Math & Trig in the Or Select A Category box.9. Click Sum in the Select A Function box.10.Click OK. The Functions Arguments dialog box opens.11.Type C1:C3 in the Number1 field, if it does not automatically appear.12.Click OK. Microsoft Excel sums cells C1 to C3.13.Move to cell A4.14.Type the wordSum.15.Press Enter.

As you learned in Lesson 2, you can also calculate a sum by using the Sum icon.

Calculating an Average

You can use the AVERAGE function to calculate the average of a series of numbers.

1. Move your cursor to cell A6.2. TypeAverage. Press the right arrow key to move to cell B6.3. Type =AVERAGE(B1:B3).4. Press Enter. The average of cells B1 to B3, which is 21, will appear.

Calculating an Average by Using the Sum Icon

In Microsoft Excel XP, you can use the Sum icon to calculate an average.

1. Move your cursor to cell C6.2. Click the drop-down arrow next to the Sum icon.

3. Click Average.4. Highlight C1 to C3.5. Press Enter. The average of cells C1 to C3, which is 100, appears.

Calculating Min

You can use the MIN function to find the lowest number in a series of numbers.

1. Move your cursor to cell A7.2. TypeMin.3. Press the right arrow key to move to cell B7.4. Type = MIN(B1:B3).

5. Press Enter. The lowest number in the series, which is 12 appears.

Calculating Max

You can use the MAX function to find the highest number in a series of numbers.

1. Move your cursor to cell A8.2. TypeMax.3. Press the right arrow key to move to cell B8.4. Type = MAX(B1:B3).5. Press Enter. The highest number in the series, which is 27, appears.


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71Note: You can also use the drop-down menu next to the Sum icon to calculate minimums and

maximums.

Calculating Count

You can use the count function to count the number of items in a series.

1. Move your cursor to cell A9.2. Type Count3. Press the right arrow key to move to cell B9.4. Click the down arrow next to the Sum icon.5. Click Count.6. Highlight B1 to B3.7. Press Enter. The number of items in the series, which is 3 appears.

Filling Cells Automatically

You can use Microsoft Excel to fill cells automatically with a series. For example, you can have

Excel automatically fill in times, the days of the week or months of the year, years, and other

types of series. Days of the week and months of the year fill in a similar fashion. The following

demonstrates filling the days of the week:

1. Move to Sheet2.2. Move to cell A1.3. Type Sun.4. Move to cell B1.5. Type Sunday.6. Highlight cells A1 to B1.

7. Bold cells A1 to B1.8. Find the small black square in the lower right corner of the highlighted area. This is

called the Fill Handle.

9. Grab the Fill Handle and drag with your mouse to fill cell A1 to B24. Note how the daysof the week fill the cells in a series. Also, note that the Auto Fill Options icon appears.

10.Click the Auto Fill Options icon.11.Choose the Copy Cells radio button. The entry in cells A1 and B1 are copied to all the

cells highlighted.

12.Click the Auto Fill Options icon again.13.Choose the Fill Series radio button. The cells fill as a series from Sunday to Saturday

again.

14.Click the Auto Fill Options icon again.15.Choose the Fill Without Formatting radio button. The cells fill as a series from Sunday to

Saturday, but the entries are not bolded.

16.Click the Auto Fill Options icon again.17.Choose the Fill Weekdays radio button. The cells fill as a series from Monday to Friday.


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72Some of the entries in column B are too long to fit in the column. You can quickly adjust the

column width to fit the longest entry.

1. Move your cursor over the line that separates column B and C. The Width Indicatorappears.

2. Double-click. The Column adjusts to fit the longest entry.

The following demonstrates filling time:

1. Type 1:00 into cell C1.

2. Grab the Fill Handle and drag with your mouse to highlight cells A1 to A24. Note thateach cell fills using military time.

3. Press Esc and then click anywhere on the worksheet to remove the highlighting.

To change the format of the time:

1. Select cells C1 to C24.2. Choose Format > Cells from the menu.3. Choose the Number tab.4. In the Category box, choose Time.5. In the Type box, choose 1:30 PM.6. Click OK. The time is no longer in military time.

You can also fill numbers.

Type a 1 in cell D1.

1. Grab the Fill Handle and drag with your mouse to highlight cells D1 to D24. The number1 fills each cell.

2. Click the Auto Fill Options icon.3. Choose the Fill Series radio button. The cells fill as a series starting with 1, 2, 3.

Here is another interesting fill feature.

1. Go to cell E1.2. TypeLesson 1.3. Grab the Fill Handle and drag with your mouse to highlight cells E1 to E24.4. The cells fill in as a series: Lesson 1, Lesson 2, Lesson 3, and so on.

Printing

The simplest way to print is to click the Print icon located on the Standard toolbar. Dotted lines

will appear on your screen after you click the print icon. The dotted lines indicate the right, left,

top, and bottom edges of your printed pages.


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73Print Preview

There are many print options. You can select print options options in Page Setup or in Print

Preview. In Print Preview, you can see the results of your selections onscreen. You can use print

options to:

Determine whether to print landscape or portrait. If you print portrait on an 8 1/2 by 11sheet of paper, the length across the top of your page will be 8 1/2 inches. If you print

landscape on an 8 1/2 by 11 sheet of paper, the length across the top of your page will be

11 inches.

Scale your document. If your data is small in comparison to the page, you may want toscale upward so the data fills the entire page. If your data is too large to fit on the page,

you may want to scale downward.

Specify how many pages wide and how many pages long you want your printed documentto be.

Select the paper size and print quality. Set the first page number.

If you choose the Margins tab, you can:

Set the size of your margins including your header and footer margins. Center your spreadsheet horizontally and/or vertically on the page.

If you choose the Header/Footer tab, you can select headers and footers. A header is text that

appears at the top of every page. A footer is text that appears at the bottom of every page. You

can use headers and footers to insert page numbers, dates, and other information.

To choose a header:

1. Choose the Header/Footer tab.2. Click the down arrow next to the Header field to open the drop-down box for the header

field.

3. Choose a Header from the list.

To choose a footer:

1. Choose the Header/Footer tab.2. Click the down arrow next to the Footer field to open the drop-down box for the Footer

field.

3. Choose a Footer from the list.

Click the Custom Header or Custom Footer button to customize your headers and footers.


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74Use the Left Section to place your options on the left side of the page, the Center Section to

place your options in the center of the page, and the Right Section to place your options 9on the

right side of the page.

The Sheet tab has options that allow you to choose which rows and columns will repeat at the left

and the top of the page. It also has options that allows you to determine whether gridlines and/or

row column headings print

To preview and print your spreadsheet:

1. Choose File > Preview from the menu.2. Click Setup.3. Choose the Page tab.4. Choose Portrait.5. In the Adjust To field, type 110% to set the size to 110%,.6. Choose the Margin tab.7. Check the Horizontally box in the Center On Page frame to center your spreadsheet

horizontally.

8. Click OK.9. Click Print. The Print dialog box opens.10.Click OK to print the file.

Saving Your File

To save your file:

1. Choose File>Save from the menu.2. Go to the directory in which you want to save your file.

3. Type File Name in field.4. Click Save.

Creating Charts

Using Microsoft Excel, you can represent numbers in a chart. You can choose from a variety of

chart types. And, as you change your data, your chart will automatically update. You can use

Microsoft Excel's Chart Wizard to take you through the process step-by-step.

Creating a Column Chart


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75To create the column chart shown above, start by creating the spreadsheet below exactly as

shown.

After you have created the spreadsheet, you are ready to create your chart.

1. Highlight cells A3 to D6. You must highlight all the cells containing the data you want inyour chart. You should also include the data labels.

2. Choose Insert > Chart from the menu.3. Click Column to select the type of chart you want to create.4. In the Chart Sub-type box, choose the Clustered Column icon to select the chart sub-type.

5. Click Next.6. To place the product names on the x-axis, select the Columns radio button.7. Clic

Documents

f2 Revesion Notes by Ammar