B1: Corporate Governance and Operations Management Flashcards
Cost Objectives
Resources or Activities that serve as the basis for management decisions “PIE”
Product Cost
Income Determination
Efficiency
Prime Costs
Direct Materials +
Direct Labor
Conversion Costs
Direct Labor +
Overhead Applied
Product Costs
Inventoriable Costs that are NOT expensed until the product is SOLD
DM + DL + Mfg. O/H APPLIED
“These costs are IN THE FACTORY”
Period Costs
INCOME STATEMENT ONLY
Selling, General, & Administrative (SG&A) Expenses + Interest Expense
“These costs are IN THE OFFICE”
Application of Overhead When Traditional Costing is Used
Step 1:
Budgeted Overhead Costs / Estimated Cost Driver = Calculated Overhead Rate
Step 2:
ACTUAL Cost Driver x Calculated Overhead Rate = Applied Overhead
Calculating Cost of Goods Manufactured (COGM)
WIP, BB \+ DM used \+ DL \+ Mfg. O/H \_\_\_\_\_\_\_\_\_\_\_\_ Mfg. Costs Available - WIP, EB \_\_\_\_\_\_\_\_\_\_\_\_ COGM
Calculating Direct Materials Used (DM Used)
RM, BB \+ Purchases \+ Freight/Transportation-In - Returns \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ Materials AFS - RM, EB \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ Raw/Direct Materials Used
Calculating Cost of Goods Sold (COGS)
Finished Goods (FG), BB \+ COGM OR Net Purchases \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ COG AFS - FG, EB \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ COGS
Calculating Equivalent Units - Weighted Average Method
Two-Step Process
Step 1:
Units Competed during the Period xxx
Step 2:
Ending WIP x % Completed + xxx
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x,xxx
Calculating Equivalent Units - FIFO Method
Three-Step Process
Step 1:
Beginning WIP x % to be completed xx
Step 2:
Units Completed - Beginning WIP + xx
Step 3:
Ending WIP x % Completed + xx
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x,xxx
Joint Products
Two or more Products that are generated from a common input
By-Products
Relatively small value, result from manufacturing of main product
Split-Off Point
Joint products are recognized as individual products
Joint Product Costs
Producing products UP TO the split-off point
Separable Costs
Costs incurred AFTER split-off point
Break-even in units
Total FC / Contribution Margin (CM) per unit
Break-even in dollars (CM per unit)
Unit Price x Break-even point in units
Break-even in dollars (CM ratio)
Total FC / CM ratio (CM / Sales)
Margin of Safety
Sales - Break-even Sales
Pre-tax Profit
After-tax Profit / (1 - tax rate)
After-tax Profit
Pre-tax Profit x (1 - tax rate)
Difference between Absorption costing and Variable Costing methods
When production is greater than sales, absorption costing income is greater than variable costing income
When Sales is greater than production, absorption costing income is lower than variable costing income
Units sold to achieve profit
(FC + Profit) / (CM per unit)
Algebraic Formula for Percent Increase in Sales
S - (VC% x S) - FC = Sx
Break-even Analysis Assumes….
All VC and Revenues are constant on a per unit basis and linear over a relevant range. FC in total are constant
Absorption Costing
Revenue - COGS (DM + DL + Fixed and Variable O/H) \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ Gross Margin - Operating Expenses \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ Net Income
Contribution (aka Variable or Direct) Costing
Revenue
- Variable Costs (DM + DL + Variable O/H + Variable SG&A)
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Gross Margin
- Fixed Costs (Fixed O/H + Fixed SG&A)
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Net Income
Absorption Approach vs. Contribution Approach
Treatment of FIXED factory overhead.
Absorption: Product Cost = COGS
Contribution: Period Cost = Expensed in period incurred
Based on potential sales of 500 units per year, a new product has estimated traceable costs of $990,000. What is the target price to obtain a 15% profit margin on sales?
$990,000 / .85 = $1,164,700 sales
$1,164,700 / 500 units = $2,329 per unit
