Buad 281 Final

managerial accounting

At breakeven point, CM \= \________

CM \= FC
profits if CM \> FC
Losses if CM < FC

Average Costs \= \________ /\________

Total Cost / Unit

Breakeven $ of SALES formulas doe?

If FC\=CM, then...
FC \= CM Ratio*Sales
Sales \= FC/CM Ratio
Sales \= FC/(CM/Sales)

\*****ALTERNATIVELY, find the breakeven quantity using Q\=FC/(P-VC) and multiply the Q by the selling price/unit

Breakeven analysis helps accomplish what?

Helps you compute how many sales are required for CM\=FC, or to break even. It's a *SPECIAL* kind of target profits ;)

Breakeven QUANTITY formulas doe?

if FC\=CM, then...
FC\=CM/Unit*Q
Q\=FC/(CM/Unit)
Q\=FC/(P-VC)

Budgeted OH Costs (MOH Budget)

Cost Driver x Variable OH Rate + Fixed OH Costs

Budgeted SG&A Cost \=

Budgeted SG&A Costs - Non Cash SG&A (Depreciation)

Cash Budget

Details the ENDING CASH BALANCE for the budgeted period

Beginning Cash Flow
+ Cash Inflows (Receipts)
\___________________________________
\= Available Cash
- Cash Outflows (Disbursements)
\______________________________________________
\= Ending Cash

Cash Payments for OH (MOH Budget)

Budgeted OH Costs - Non-Cash OH Costs [Depreciation]

CM Formulae

CM \= Profit + Fixed Costs
CM \= Revenue - Total VC
CM \= (Price/Unit - VC) x Quantity
hence, CM/Unit \= (P-VC)
Profit \= CM - Total Fixed Costs

COGM \= \________-\________ + \________

Werk in Process BB - EB + (DM+DL+MOH)

COGS \= \________-\________ + \________

Finished Goods BB - EB + COGM

COGS in FG Budget

BB FG - EB FB + Total Product Costs

Cost of Material Purchases (DM Budget Assumption)

Quantity of Material Purchases x Budgeted Material Prices

**notice how everything in the DM assumptions feeds into each other

Cost-Plus Pricing Pros and Cons

Pros: Ensures prices provide an acceptable ROI
Cons: Doesn't consider effect of prices upon consumer demand

Costs can be classified based on what four things?

1. Behavior (Fixed/Var)
2. Traceability (Direct/Indirect)
3. Relevance (Opportunity cost, differential/incremental cost, or sunk cost)
4. Financial Statement Treatment (Period or product)

Define cost behavior.

The relation between costs and cost drivers

Describe product/inventoriable costs

They are incurred via MANUFACTURING.
They are initially put into inventory accounts and expensed via COGS AFTER sale.

Describe what period costs are.

They're all other costs besides product costs that are ESPENSED IMMEDIATELY. Example: S&A

Direct costs are \________ and \________, and are traced...

DM, DL, and are traced to a single cost object

Direct costs are...

Almost always variable (ex: variable MOH) and are directly and completely traced!!!) do NOT conflate a DIRECT cost with a PRODUCT cost!!@!

Direct Labor Budget

Shows the quantity and cost of DL needed in Budgeted Period

Direct Product Costs...

Are transferred (debited) directly into werk in process inventory when incurred.

DL Cost

DL hours For Production x DL Cost/Hour

DL Hours Needed for Production (DL Assumption)

Units Produced x DL Hour/Unit

DL Key Assumptions

-Units Produced (FROM PRODUCTION BUDGET)
-DL hours required per unit of production
-Cost per DL hour
\~~~assume DL costs are paid immediately in cash\~~~~

DM Budget

Shows the quantity and cost of direct materials purchased in the budgeted period

DM Budget Assumptions

- Units Produced (PRODUCTION BUDGET)
- Quantity of DM/UN of FG Production
- Units of DM EI
- Cost/Un of DM

DM Cost \= \________-\________ + \________

Raw Materials BB - EB + Purchases

do income taxes affect breakeven point?

NO!11!!!1! ZERO EFFECT!!!!!

Ending FG Inventory ($) (FG Budget)

(Product Cost/Unit) * (EB Finished Goods in Units)

Explain cost-plus pricing

Given a certain cost structure, set prices to maintain a desired rate of profit

Price \= Cost x (1 + Markup Rate)

Explain curvilinear costs.

Unlike the linear ones, these have a curved/non-linear relation with volume.

Explain long run time horizon.

Pricing decisions have \>1 Year and should consider ALL (VC + Fixed) costs
*Cost-Plus Pricing
* Market-Based Pricing

Explain mixed costs.

SEMI -VARIABLE
Contain both variable and fixed elements!

Explain short run time horizon.

< 1 Year and typically only considers variable costs

Explain step costs.

Initially remain the same as volume increases; then increase
\*** Can be step-VARIABLE OR step-FIXED costs
the primary distinction between whether it's step-var and step-fixed is how "wide" the "Steps" are.

FG Budget Key Assumptions

Product Costs (from DM,DL,MOH budgets)
Units Produced and Units of EB FG Inv (from production budget)

Assume FIFO and Zero WIP Inventory

Finished Goods Budget

Value of Ending Finished Goods Inventory and COGS

Fixed Costs...

Do not change as cost driver changes but they decrease as the CD increases

Gross Profit \= \________-\________

Sales - COGS

How might a firm increase RI?

Invest in projects with ROI \> Discount Rate

How might a firm increase ROI?

* Increase Sales Margin
* Increase Capital Turnover
* Invest in projects with ROI \> Current ROI

How to calculate Actual Results?

Actual Price x Actual Quantity

How to calculate things in the flexible budget?

Standard Price x Standard Quantity

How to Standard Costs of Actual Inputs?

Standard Price x Actual Quantity

If MOH is overapplied than the actual, then...

You need to dedit (decrease) COGS

If MOH is underapplied than the actual, then...

You need to crebit (increase) COGS

If Profit \= CM - TFC, then...

Profit \=
\=(P-VC)*Q - FC
\=CM/Unit*Q - FC
\=CM Ratio*Revenue - FC

Indie rekt costs are...

Shared between multiple cost objects and must be allocated/assigned/applied

Indirect costs are..

A lot harder to trace than direct costs and are instead allocated! This is why we have normal and activity based methods

Indirect Product costs...

Pass through manufacturing overhead clearing account when incurred and applied.

Interpret the ending balance of finished goods inventory

It's the finished goods that was UNSOLD

Markup Rates for Total Costs Formula

Target Profit/Total Cost

Markup Rates for Variable Costs Formula

Target CM/Total VC

MOH Budget

Shows the total cost of MOH in budgeted period

OH \= Variable MOH per un + Fixed MOH Costs

some OH costs don't involve cash payments, such as depreciation

we will assume the remainder are paid immediately in cash

Net Income \= \________-\________

Operating Profit - Income Tax

now, what is cost estimation? :0

The process of determining cost behavior!

Operating Profit \= \________-\________

Gross Profit - Selling/Admin

Overhead variance is overapplied if...

Applied OH \> Actual OH

Overhead variance is underapplied if...

Applied OH < Actual OH

Pre-Tax Target Profit Formula

Pre-Tax Profit \= (After-tax Profit) / (1-Tax Rate)

Predetermined OH Rate Formula

Total Budgeted Overhead Costs/Total Budgeted Cost Driver

APPLY THAT RATE TO "ACTUAL" cost driver used. NOT BUDGETED.

this shit is known as normal costing.

Price variances are \______ variances and Quantity variances are \________ variances

Rate; Efficiency

Production Budget

Quantity of inventory (in UNITS) to be produced
Key Assumptions: Units Sold (SALES BUDGET)
Units of Ending FG inventory

UN Produced \= Un Sold + Ending Inv - Beg Inv

the units of ending inventory assumption can be expressed as the % of the next period's sales (in UN) or \# of units

Quantity of Material Purchases (DM Budget Assumption)

Quantity of Materials needed for Production
+ Desired EI of Materials
- BB Materials

**notice that this is backwards of the wip/fg/cogs shit where you'd normally subtract EI from BB

Quantity of Materials Needed for Production

UN Produced x Quantity of DM/UN

RI Formula (residual income)

RI \= Profit - (Discount Rate x Avg. Inv. Capital)

ROI Formula (return on investment)

ROI \= Profit / Avg. Invested Capital
or
ROI \= Sales Margin / Capital Turnover
\= (profit / sales) (sales/avg. inv. capital)

Sales Budget

Details the EXPECTED REVENUE in the BUDGETED PERIOD.
Key Assumptions: Selling price/unit and Units Sold

budgeted revenue \= selling price*units sold

SG&A (Non-Manufacturing) Budget

Details the non-manufacturing costs in a budgeted period
Combine: variable SG&A costs per unit sold and Fixed SG&A

Some SG&A costs don't involve cash (eg. depreciation)
Assume the remainder are paid immediately in cash

so really, what is profit?

the amount by which CM exceeds FC

Target Cost \= \________ / \________

Target Cost \= Target Price / (1 + Markup Rate)

Target Profits formula?

keep in mind, to achieve a target profit, we need
CM \= FC + Target Profit
CM/Unit*Q\=FC + Target Profit
Q\= (FC + Target Profit) / (CM/Unit)

Total Cost \= \________+\________

Total Variable Cost + Total Fixed Cost
**to find per unit just divide vc and fc by un

Total costs for a particular cost object are...

The sum of direct and indirect costs

Under what kind of costing do MOH variances occur?

Only in normal costing do you need to possibly close out MOH variance; there's never a variance in actual costing

Under which Manufacturing Inventory Account does APPLIED overhead go :0

Werk in process

Variable costs...

Increase as the cost driver increases but VC/UN remains constant as cost driver increases

wat is Customer Profitability Analysis?

We can estimate the cost of a specific customer, and based on the revenue they generate, compute profitability

Wat is le formula for the high-low cost estimation method?

Difference in COST btwn high and low activity
\__________________________________________________________________________
Difference btwn QUANTITY of highest/lowest activity

Wat is the MARGIN of SAFETY?

The excess of planned or actual sales over the breakeven sales.

MofS\=Total Sales - Breakeven Sales

Can be expressed in $ or Un!

What are some examples of ACTUAL indirect costs?

Rent costs, indirect mateirals, indirect labor

What are some examples of APPLIED COSTS?

Applied to donuts, to coffee, etc.

What are some issues with Traditional Costing?

Overhead costs are accumulated into ONE cost pool and allocated to a cost object using a readily observable (volume based) cost driver

Can lead to misleading cost estimates when overhead costs are not proportional to volume

What are Standard Costs?

The forecasted costs for ACTUAL activity levels calculated via the FLEXIBLE budget

What are the advantages and disadvantages of ROI?

Pro: Can be compared across companies and divisions
Con: Can lead to UNDERINVESTMENT

What are the cost-estimation methods for how a cost DOES behave?

1. Visual fit
2. High-Low (Based on a line between HIGHEST and LOWEST activity levels ONLY, not just any ordered pairs)
3. Regression

What are the cost-estimation methods for how a cost SHOULD behave?

1. Account classification
2. Engineering

What are the pros and cons of RI?

Pro: Encourages investing in good projects that might be rejected when using ROI
Con: Hard to compare performance across divisions

What are the three major product costs?

Direct materials, direct labor, and manufacturing overhead

What are the two different DM Price variances?

1) DM Purchase Price Variance - Uses actual quantity PURCHASED

2) DM PRICE Variance - Actual quantity USED

What are the two methods in which traditional costing systems assign indirect costs?

Job Costing Systems: Allocate costs so specific units or batches of production

Process Costing Systems: Allocate costs to a large number of homogenous/indistinguishable units

What are two ways to find CM Ratio?

(CM/Unit)/Price
CM/Total Revenue

What comprises the Manufacturing Cost Budgets?

DM, DL , and MOH Budgets

What does "no inventories" mean?

It means assume no previous BB's or EB's of inventory

What does a cost driver cause?

It causes the amount of a cost to change
"units sold / Produced"

what does CVP stand for?

cost-volume-profit

What does the contribution margin tell you?

How much of the price you sell something for contributes to ya profit. It's the difference between SALES REVENUE and TOTAL VARIABLE COSTS

What does the visual fit method mean?

"eyeballing" a line that fits historical data cost