ACC 303

How to find fixed portion of sales representatives’ compensation

(fixed selling expense per unit * units produced) - advertising

Fixed selling expense excludes

advertising

As the amt of units produced increases, average cost ____

decreases because the fixed cost is spread across more units.

Y = mx + b

Y = total cost

m = variable cost/ unit

x = activity

b = cost

How much total manufacturing cost is an indirect cost that cannot be easily traced to the Manufacturing Department?

0

How to find COGS

Beginning merchandise inventory + merchandise purchases - ending merchandise inventory

How to find fixed portion of sales representatives’ compensation

1. Find fixed selling expense (fixed selling expense p/unit * total units)

2. total fixed selling expenses - total advertising

When the company sells x amt of units, what is the total indirect selling expense that cannot be readily traced to individual sales representatives

total advertising expense

Sales - COGS = ??

Gross Margin

How to calculate selling expenses

(Variable selling expense p/unit * total units) + total fixed selling expense

How to calculate administrative expenses

(Variable administrative expense p/unit * total units) + total fixed administrative expense

How to find net operating income

Gross margin - Net operating income

Traditional income statement format

Sales

(Cogs)

= Gross Margin

(Selling and Admin)

Net operating income

Contribution income statement format

Sales $

Variable Expenses:

COGS $

Selling expenses $

Administrative expenses $

(sales - variable expenses) Contribution Margin

Fixed Expenses

Selling

Admin

Contribution margin - Fixed expenses = Net operating income

How to estimate total fixMOH cost per unit in the next period

Use the equation of a line and solve for Y (y = mx + b)

How to find the POHR

Estimated total MOH / estimated total units (ex. DL hours)

How to find total manufacturing cost to an assigned job

DM + DL + applied MOH

How to find unit product cost (if there is more than one item in a job)

total manufacturing cost / number of units in the job

How to find selling price if company uses a markup percentage

total job cost + (total job cost * markup)

JE for Raw materials purchased on account (Job-order costing)

Dr. Raw materials

CR. AP

JE for Raw materials used in production (all direct materials) (Job-order costing)

DR. WIP

CR. Raw materialsw

JE for Utility bills incurred on account, some related to inside factory, others s&A (Job-order costing)

DR. MOH

DR. Utilities Expense

CR. AP

JE for accured salary and wage costs (Job-order costing)

DR. Direct Labor

DR. Indirect Labor

Dr. Salaries Expense

CR. Salaries and Wages payable

JE for maintenance costs incurred on account (Job-order costing)

Dr. Manufacturing OH

CR. AP

JE for Advertising costs incurred on account (Job-order costing)

DR. Advertising expense

CR. AP

JE for Depreciation, some related to factory equipment, the rest related to s&A (Job-order costing)

DR. MOH

DR. Depreciation expense

CR. Accumulated Depreciation

JE for rental costs on acc, some related to factory equipment, the rest related to s&A (Job-order costing)

DR. MOH

DR. Rent expense

CR. accounts payable

JE for MOH applied to jobs (Job-order costing)

1. PDOH (estimated total MOH / Estimated total amt of allocation base)

2. PDOH rate * actual DLH

JE for Cost of goods manufactured for the year (Job-order costing)

DR. Finished Goods

CR. WIP

JE

Sales for the year (all on account) totaled $1,200,000. These goods cost $800,000 according to their job cost sheets.

(Job-order costing)

DR. AR

CR. Sales

DR. COGS

CR. Finished Goods

What is underapplied overhead

• Actual OH less than applied

• MOH has a DEBIT balance

What is overapplied overhead

• Actual OH greater than applied

• MOH has a DEBIT balance

COGS adjustment for overapplied overhead

DR. MOH

CR. COGS

COGS adjustment for overapplied overhead

DR. COGS

CR. MOH

What similarities do process costing and job costing have

• both assign materials, labor, and OH to products

• Both use the same accounts

• track costs to calculate unit product cost

What differences do process costing and job costing have

• Application

  • job order: unique jobs

  • Process = mass production of identical products

• Cost tracking

  • Job order: by job

  • Process: by department

What are equivalent units

• a way to measure partially completed work

Equivalent units are not

physical units

Equivalent units are calculated seperatley for

• Direct materials

• converstion costs

Conversion costs

DL + MOH

Prime costs

DM + DL

How to calculated equivalent units

Completed units + (Ending WIP * % percentage complete)

Weighted average formula

(Cost of BEG. WIP + Cost in added in current period) / Total equivalent units

How many average costs are there

• 1 per unit

• Beginning WIP + current work period

• no seperation by period

Equivalent units = ???

total work done

JE for Raw materials used in production: Filtration Dept and Bottling Dept (Process costing)

DR. WIP- Filtration Department

DR. WIP- Bottling Department

CR. Raw Materials

JE for DL costs: Filtration Dept and Bottling Dept (Process costing)

DR. WIP - Filtration Dept

DR. WIP - Bottling Dept

CR. Salaries and Wages Payable

JE for MOH was applied, filitration and bottling (Process costing)

DR. WIP - filtration dept

DR. WIP - bottling dept

CR. MOH

JE for filitered water transferred from the filtration department to the bottling department (Process costing)

DR. WIP Bottling

CR. WIP Filtration

JE for cost of finished bottled water sold (Process costing)

DR. COGS

CR. Finished Goods

Equivalent units of production always equal

Units completed and transferred + Equivalent units remaining in WIP

How to find cost per equivalent unit

1. Cost of beginning WIP + cost added during the period

2. Divided by equivalent units of production

How to find total units completed and transferred out

1. Find the cost of units completed and transferred out for conversion and other department (equivalent units * cost per equivalent units)

2. Add the two costs together to find the total cost of units completed and transferred out

Cost Reconciliation report

Costs to be accounted for:

Cost of beg. WIP (for both conversion + DM)

Costs added to production (for conversion + DM)

= total costs to be accounted for

Costs accounted for as follows

Costs of ending WIP

Cost of total units completed and transferred out

= total cost accounted for

Contribution margin

Sales - variable costs

Contribution margin ratio

CM / Sales

How to find net operating income if the company only sells one case

Sales (1 case)

- Variable expenses (1 case)

= contribution margin

- fixed expenses (in total)

= net operating income

How to find unit sales to break even

fixed expenses + profit / CM per unit

How to find profit using contribution income statement

Profit = Sales - variable cost - fixed costs

Contribution margin has to equal ____ for net operating income to be zero

0

How to find sales dollars to break even

1. Find the CM ratio (CM / Sales)

2. Plug numbers into formula (Profit = CM ratio * Sales - Fixed expenses

   1. Solve for Sales

Contribution Margin per Unit Method method to calculate the dollar sales at the break-even point

Fixed expenses / CM ratio

How to find how many cases have to be sold earn a target profit of $100,000.

1. Set up formula (Profit = Unit CM × Q – Fixed expenses)

   1. Plug in what you know and solve for Q

Formula to find Unit sales to attain the target profit

(target profit + fixed expenses) / CM per unit

How to find dollar sales to attain profit

(target profit + CM ratio) / CM ratio

What is the margin of safety

excess of budgeted (or actual) sales over the break-even volume of sales.

How to find margin of safety

total sales - breakeven sales

how to find margin of safety in units

margin of safety/ price per unit

How to find margin safety percentage

margin of safety (in dollars) / total sales in dollars

What is operating leverage

measure of how sensitive net operating income is to percentage changes in sales.

How to calculate the degree of operating leverage

contribution margin / net operating income

Iff sales were expected to increase $xx,xxx from break-even, how much would the CM increase by?

1. use CM ratio to solve (CM / sales)

2. $xx,xxx * CM ratio = increase in CM

Iff sales were expected to increase $xx,xxx from break-even, what would managers expect profits (net operating income) to be?

1. find the new sales with the increase from xx,xxx

   1. Profit = (CM ratio * sales) - fixed expenses

If the company increased its sales volume to 5,400 cases by taking out $10,000 in additional advertising, what would management expect profit or net operating income to be? Would you recommend that managers pursue the advertising campaign?

1. Add $10,000 to advertising

2. 5400 * sales per unit = new sales

3. calculate net operating income and compare

What is variable costing

• Variable costing is an internal reporting method

• Only variable manufacturing costs are assigned to products

• Fixed manufacturing overhead is treated as a period cost

  • Used for decision-making, not GAAP reporting

Similarities between variable and absorption costing

Both include:

• direct materials

• direct labor

• variable MOH

Differences between variable and absorption costing

• Absorption costing includes fixed MOH in product cost

• Variable costing does not

How can absorption costing affect reported profit

Fixed MOH included in inventory

• profits can increase when production exceeds sales

  • profits can decrease when sales exceed production

How can variable costing affect reported profit

Fixed MOH expensed immediately

• Profit depends only on sales volume

• Contribution margin gives a clear performance signal

Is variable costing GAAP? Why?

• Variable costing is NOT GAAP

• GAAP requires absorption costing (matching principle)

• Variable costing is for internal use