Final Flashcards

Question

Product costs

Answer 1

costs associated with goods/services offered to customers

Answer 2

all other costs of operating - "operating expenses | or "selling and administrative expenses"

Answer 3

PRODUCT COSTS - cost of inv. purchased for resale inv. XXX cash XXX -when inv. is sold it becomes an expense Cost of goods sold XXX inv. XXX PERIOD COSTS - selling and admin. costs selling exp XXX cash/payable XXX ---an exp in the period it is incurred FOR PRODUCT COSTS --cost not always an expense - buy inv. it is an asset (first goes on balance sheet) - becomes an expense as it is sold (then to income stmt) FOR PERIOD COSTS --recognized as expenses in period incurred (income stmt)

Answer 4

PRODUCT COSTS - all costs of manufacturing the product to be sold by the business ---All costs of making the product 1. Direct MATERIAL cost (spring, cushion, foam) 2. Direct LABOR cost (assemble the furniture) 3. MANUFACTURING OVERHEAD COSTS a. ) indirect material costs - factory maintenance supplies, production supplies b. ) indirect labor costs - involved in manufacturing but don't actually touch - supervisors, inspectors, equipment maintenance personnel, product designers and engineers c. ) other overhead costs - factory rent, depreciation, utilities, insurance, property taxes, depreciation of equipment Mnfg overhead - all costs that you wouldn't have if you weren't making a product

Answer 5

PRODUCT COSTS - all costs of manufacturing the product to be sold by the business ---All costs of making the product 1. Direct MATERIAL cost (spring, cushion, foam) 2. Direct LABOR cost (assemble the furniture) 3. MANUFACTURING OVERHEAD COSTS a. ) indirect material costs - factory maintenance supplies, production supplies b. ) indirect labor costs - involved in manufacturing but don't actually touch - supervisors, inspectors, equipment maintenance personnel, product designers and engineers c. ) other overhead costs - factory rent, depreciation, utilities, insurance, property taxes, depreciation of equipment Mnfg overhead - all costs that you wouldn't have if you weren't making a product

Answer 6

Asset first ---> expense as sold --these costs are accounted for as a cost of "inventory" until product is sold, and then expensed as "cost of goods sold" Three categories/phases of inv. in manufacturing bus. 1. RAW MATERIALS INVENTORY 2. WORK IN PROGRESS INVENTORY (WIP) - --includes labor, equipment, and other costs 3. FINISHED GOODS INV. * then COST OF GOODS SOLD

Answer 7

``` Cash XXX A/R XXX Inv: raw materials XXX WIP XXX Finished goods XXX ---under inv. are moved to cost of goods sold as an exp. as they are sold ``` All other costs in selling and admin. expensed under Gross Margin on income stmt as (operating exp. or others) in period incurred

Answer 8

- salaries of sales secretarial staff - janitorial supplies for admin office space - building rent if 80% used for manufacturing and 20% for selling - the 20% period cost - depreciation of admin and office furniture - CEO salary - cost of acc salary - copy machine costs in sales department

Answer 9

- -direct materials used in manufacturing - raw materials - -depreciation of manufacturing equipment - overhead costs - WIP inv. - -product quality control inspector's salary - Overhead costs - WIP inv. - -factory line workers wage - direct labor costs - WIP inv. - -manufacturing VP bonus - overhead - WIP inv. - -property taxes on manufacturing equipment - overhead - WIP inv. - -building utility cost - overhead - WIP inv. - -manufacturing supervisor salaries - overhead - WIP

Answer 10

TRUE - both direct and indirect material purchases are included in raw materials inv. --utility costs should be allocated for utilities over manufacturing part of building and sales portion

Answer 11

PRODUCT COSTS | --toward service is asset, not an expense until you are billed for the service

Answer 12

Product costs reflected as asset (inv.) rather than expense until inv. is sold

Answer 13

managers need to know and understand their company's product costs to: 1. establish a product sales price (to make profit) 2. understand why company is profitable or not 3. determine which of a variety of products to emphasize in marketing 4. consider ways to reduce costs CANT INTELLIGENTLY OPERATE A BUSINESS W/O KNOWING THE COST OF YOUR PRODUCT

Answer 14

1. Process costing | 2. job order costing

Answer 15

method that is commonly used by companies that manufacture LARGE numbers of STANDARDIZED products General Mills: Cheerios, wheaties - have separate factories to produce each cereal - have to know COST PER BOX ``` Take: -manufacturing costs (for a set time) XXX -direct materials XXX -direct labor XXX -mfg overhead XXX TOTAL = XXX ``` TOTAL COSTS/ # BOXES PRODUCED --gives average price per box

Answer 16

method that is commonly used by companies that manufacture LARGE numbers of STANDARDIZED products General Mills: Cheerios, wheaties - have separate factories to produce each cereal - have to know COST PER BOX ``` Take: -manufacturing costs (for a set time) XXX -direct materials XXX -direct labor XXX -mfg overhead XXX TOTAL = XXX ``` TOTAL COSTS/ # BOXES PRODUCED --gives average price per box

Answer 17

Used by companies that make a VARIETY of diff. products where process method of averaging costs over # units produced would not distinguish the unique costs of diff. products - --one factory makes variety of products - --manufacturing costs are accumulated by separate product orders, runs or bathes ("job orders") and averaged only over # of common units produced within that job

Answer 18

Used by companies that make a VARIETY of diff. products where process method of averaging costs over # units produced would not distinguish the unique costs of diff. products - --one factory makes variety of products - --manufacturing costs are accumulated by separate product orders, runs or bathes ("job orders") and averaged only over # of common units produced within that job

Answer 19

- -oil refinery - -peach farm - -oriental rug manufacturer (depends if same run(process) if unique rugs (job order) - -door manufacturer auto manufacturer - YES bc would have separate factories making the diff. cars

Answer 20

- -home construction company | - -custom jewelry manufacturer

Answer 21

- -home construction company | - -custom jewelry manufacturer

Answer 22

INV. - RAW MATERIALS mater. purch. XXX(DR) direct mat. put into production XXX (CR) ---> (this # is starting balance for WIP inv.) ``` INV - WIP # from Raw mat. XXX (DR) Direct labor costs XXX (DR) Applied overhead XXX(DR) Production completed XXX(CR) ---> (this # is starting balance for finished goods inv) ``` INV. - FINISHED GOODS # from WIP XXX (DR) Product sold XXX (CR) ---> (this # becomes debit of cost of goods sold) ``` COST OF GOODS SOLD # from finished goods ``` - --accumulated costs added at each step! - --main step is WIP - where most accumulation takes place

Answer 23

``` INV. - WIP DM XXX DL XXX MfgOV XXX --total is debit --balance is combined cost for ALL manufacturing costs we have at this time in producing!! ``` Subsidiary ledger - -is accumulating all 3 costs (DM, DL, MfgOV) for EACH job - -subsidiary ledger for direct materials - subsidiary ledger for direct labor - subsidiary ledger for overhead - --general ledger is just the balance for each subsidiary ledger - which adds to be the balance for WIP inv. - -TOTAL of all jobs currently in progress should equal BALANCE in general ledger WIP inv.

Answer 24

Furniture business makes variety of furniture and uses job order cost system --prepare journal entries and update job sheet!! 1. Raw materials = 50,000 on account (40,000 DM and 10,000 Indirect materials) placed in raw materials inv. storage area Raw materials inv. 50,000 A/P 50,000 2. Job #352 1/1/X1 - build 5 oak tables - -employee takes authorized materials requisition form (#10025) to raw materials storage to obtain direct materials - --cost of DM for Job #351 = $1500

Answer 25

Furniture business makes variety of furniture and uses job order cost system --prepare journal entries and update job sheet!! 1. Raw materials = 50,000 on account (40,000 DM and 10,000 Indirect materials) placed in raw materials inv. storage area Raw materials inv. 50,000 A/P 50,000 2. Job #352 1/1/X1 - build 5 oak tables - -employee takes authorized materials requisition form (#10025) to raw materials storage to obtain direct materials - --cost of DM for Job #351 = $1500 WIP inv. 1500 raw materials inv. 1500

Answer 26

Furniture business makes variety of furniture and uses job order cost system --prepare journal entries and update job sheet!! 1. Raw materials = 50,000 on account (40,000 DM and 10,000 Indirect materials) placed in raw materials inv. storage area Raw materials inv. 50,000 A/P 50,000 2. Job #352 1/1/X1 - build 5 oak tables - -employee takes authorized materials requisition form (#10025) to raw materials storage to obtain direct materials - --cost of DM for Job #351 = $1500 WIP inv. 1500 raw materials inv. 1500

Answer 27

3. employee constructing 5 oak tables companies work on 1/15/X1 and submits to acc. department his semi-monthly time card (#3358) --shows all 80 hours of labor devoted to completion of tables (must distinguish wage hours and cost per job - often working multiple jobs at a time) --through a TIME CARD - shows hours per job --employee paid semi-monthly $20 per hour WORKED 80 HOURS FOR $20 PER HOUR WIP inv. 1600 cash (Wage payable) 1600 --also could involve employee and employer payroll tax withholdings!! 4. during production, employee requisitioned form #10042 from raw materials storage for various INDIRECT MATERIALS (sandpaper) - -cost total $150 to be used on construction of 5 oak tables plus other jobs over next month theoretical entry: (what u would do for DM) WIP INV. 150 raw materials inv. 150 CANT DO BC UPDATING GENERAL LEDGER AND SUBSIDIARY LEDGER AT BOTH TIMES - DONT KNOW HOW MUCH TO ALLOCATED TO JOB #351s JOB COST SHEET ACTUAL ENTRY: Manufacturing overhead 150 raw materials inv. 150

Answer 28

HOLDING ACCOUNT | ---temporary account to hold costs UNTIL we determine how to allocate cost to specific job!

Answer 29

5. during production of job #351 employee requisition (#10047) from raw materials for DIRECT MATERIALS (glue, nails) - --cost $50 for 5 oaks and other jobs over month - -can't count how many squirts of glue or nails used manufacturing overhead 50 raw materials 50 --account for the direct materials like you would for indirect materials 6. other manufacturing overhead costs for #351 and all other jobs during month - -supervisor salary, manufacturing utility costs, depreciation of manufacturing equipment - -costs would also go in holding "manufacturing overhead: until can apply to individual job manufacturing overhead XXX (DR) cash XXX (CR) Salary payable XXX (CR) Accum. depreciation XXX (CR)

Answer 30

``` MANUFACTURING OVERHEAD SUBS. LEDGER indirect materials XXX (DR) indirect labor XXX (DR) other overhead XXX (DR) credit Amt (for job) XXX --> moves to WIP inv. for the job as "applied overhead" ``` WIP INV GENERAL LEDGER DM XXX DL XXX Applied overhead XXX (amt that was debited in overhead) ---use estimation to apply holding amounts to WIP and job cost sheets ---PREDETERMINED OVERHEAD RATES

Answer 31

STEP 1: Mgmt must first identify some activity which can be separately measured job by job and bears some correlation with manufacturing overhead costs (A driver) - --ex. DIRECT LABOR HOURS - commonly used activity in application of manufacturing overhead bc can be measured JOB BY JOB thru time cards and often correlates with overhead costs - -Jan = $360,000 COST / 24,000 HRS = $15/hr - -for every hr. labor hours increase = increase in manufacturing costs - -in this way we have identified a measurable activity that has a relationship with dollar value of overhead costs - can use as basis for allocating costs

Answer 32

Found measurable activity, now calc. an overhead rate for the future based on prospective or budgeted overhead costs and budgeted direct labor costs (Budgeted overhead costs for next month) / (budgeted direct labor hours for next month) = $402,800 / 26,500 hr. = $15.20/hr. = PREDETERMINED OVERHEAD RATE

Answer 33

"Predetermined mfg. overhead rate" of $15.20 per direct labor hour is then used to APPLY OVERHEAD to each job in produced based on ACTUAL # OF LABOR HOURS incurred per job as reported in employee time cards direct labor hours X predetermined overhead rate = applied overhead for that job 80 hrs X $15.20 = $1,216 $1,216 = cost associated with manufacturing overhead for Job #351 WIP inv. 1,216 mfg. overhead 1,216 *UPDATE JOB COST RECORD*

Answer 34

JOB COST RECORD - Job #351, # units = 5 DIRECT MATERIALS Date: 1/1/XI # 10025 Amount: $1,500 DIRECT LABOR Date: 1/15/X1 #3358 hours: 80 rate: $20 amount: $1,600 Manufacturing overhead Date: 1/15/X1 rate: $15.20 labor hours: 80 Amount: $1,216 TOTAL COST = $4,316 (Add up each amount) Cost per unit: $4,316 / 5 units = $863.20 to know what to sell product must know the cost per unit!!

Answer 35

8. Production complete on Job #351 and tables transferred to finished goods inv. storage area Finished goods inv. 4316 WIP INV. 4316 9. One of chair sold to customer for $1,400 A/R 1400 sales revenue 1400 cost of goods sold 863.20 finished goods inv. 863.20

Answer 36

8. Production complete on Job #351 and tables transferred to finished goods inv. storage area Finished goods inv. 4316 WIP INV. 4316 9. One of chair sold to customer for $1,400 A/R 1400 sales revenue 1400 cost of goods sold 863.20 finished goods inv. 863.20

Answer 37

Manufacturing overhead must be set to 0 bc it just a temporary holding account --but rarely comes to 0 bc it is credited by an estimated budget Balance sheet ends in DEBIT = UNDER APPLIED in budget estimate - have more overhead costs leftover - need adjustment to end in 0 --- Cost of goods sold XXX mfg. overhead XXX ---debit cost of goods sold bc you don't know where leftover portion should go> jobs in WIP finished or sold already? small amt. so just do cost If end in CREDIT = OVER APPLIED and must adjust to clean holding account to 0 ---- manufacturing overhead XXX cost of goods sold XXX

Answer 38

STEP 1: Mgmt must first identify some activity which can be separately measured job by job and bears some correlation with manufacturing overhead costs (A driver) - --ex. DIRECT LABOR HOURS - commonly used activity in application of manufacturing overhead bc can be measured JOB BY JOB thru time cards and often correlates with overhead costs - -Jan = $360,000 COST / 24,000 HRS = $15/hr - -for every hr. labor hours increase = increase in manufacturing costs - -in this way we have identified a measurable activity that has a relationship with dollar value of overhead costs - can use as basis for allocating costs to find the measurable activity --divide the estimated budget $ / activity(hrs) direct labor hours = 250,000/76,000 hrs machine hours for three months = .12, .127, .124 = closest and used!

Answer 39

Manufacturing overhead must be set to 0 bc it just a temporary holding account --but rarely comes to 0 bc it is credited by an estimated budget Balance sheet ends in DEBIT = UNDER APPLIED in budget estimate - have more overhead costs leftover - need adjustment to end in 0 --- Cost of goods sold XXX mfg. overhead XXX ---debit cost of goods sold bc you don't know where leftover portion should go> jobs in WIP finished or sold already? small amt. so just do cost If end in CREDIT = OVER APPLIED and must adjust to clean holding account to 0 ---- manufacturing overhead XXX cost of goods sold XXX

Answer 40

cost goes to raw materials --when they're used it goes to overheated holding account until applied to WIP DIRECT AND INDIRECT IN RAW MATERIAL COSTS Job cost sheets are also subsidiary ledgers for accts - for WIP inv

Answer 41

1. DIRECT MATERIAL COSTS - determined by material requisition forms noting amt. and cost of raw materials released to each job 2. DIRECT LABOR COSTS - require employees to keep TIME CARDS noting # hours worked on specific job 3. MANUFACTURING OVERHEAD COSTS - applied on estimated basis using predetermined overhead rate on some activity - -direct labor hours, material costs, machine hours) - measured for each job

Answer 42

STEP 1: Mgmt must first identify some activity which can be separately measured job by job and bears some correlation with manufacturing overhead costs (A driver) - --ex. DIRECT LABOR HOURS - commonly used activity in application of manufacturing overhead bc can be measured JOB BY JOB thru time cards and often correlates with overhead costs - -Jan = $360,000 COST / 24,000 HRS = $15/hr - -for every hr. labor hours increase = increase in manufacturing costs - -in this way we have identified a measurable activity that has a relationship with dollar value of overhead costs - can use as basis for allocating costs to find the measurable activity --divide the estimated budget $ / activity(hrs) direct labor hours = 250,000/76,000 hrs machine hours for three months = .12, .127, .124 = closest and used! using machine hours --estimated overhead costs = $625,000 prediction for next year --machine hours = 77,000 estimate $625,000 / 77,000 hrs = $8.12 per hour predetermined overhead rate actual machine hours for job = 25 (25 X $8.12) = $203 applied to job (Credit in overhead) - left over goes to cost of goods sold

Answer 43

Found measurable activity, now calc. an overhead rate for the future based on prospective or budgeted overhead costs and budgeted direct labor costs (Budgeted overhead costs for next month) / (budgeted direct labor hours for next month) = $402,800 / 26,500 hr. = $15.20/hr. = PREDETERMINED OVERHEAD RATE

Answer 44

"Predetermined mfg. overhead rate" of $15.20 per direct labor hour is then used to APPLY OVERHEAD to each job in produced based on ACTUAL # OF LABOR HOURS incurred per job as reported in employee time cards direct labor hours X predetermined overhead rate = applied overhead for that job 80 hrs X $15.20 = $1,216 $1,216 = cost associated with manufacturing overhead for Job #351 WIP inv. 1,216 mfg. overhead 1,216 *UPDATE JOB COST RECORD*

Answer 45

JOB COST RECORD - Job #351, # units = 5 DIRECT MATERIALS Date: 1/1/XI # 10025 Amount: $1,500 DIRECT LABOR Date: 1/15/X1 #3358 hours: 80 rate: $20 amount: $1,600 Manufacturing overhead Date: 1/15/X1 rate: $15.20 labor hours: 80 Amount: $1,216 TOTAL COST = $4,316 (Add up each amount) Cost per unit: $4,316 / 5 units = $863.20 to know what to sell product must know the cost per unit!!

Answer 46

8. Production complete on Job #351 and tables transferred to finished goods inv. storage area Finished goods inv. 4316 WIP INV. 4316 9. One of chair sold to customer for $1,400 A/R 1400 sales revenue 1400 cost of goods sold 863.20 finished goods inv. 863.20

Answer 47

Manufacturing overhead must be set to 0 bc it just a temporary holding account --but rarely comes to 0 bc it is credited by an estimated budget Balance sheet ends in DEBIT = UNDER APPLIED in budget estimate - have more overhead costs leftover - need adjustment to end in 0 --- Cost of goods sold XXX mfg. overhead XXX ---debit cost of goods sold bc you don't know where leftover portion should go> jobs in WIP finished or sold already? small amt. so just do cost If end in CREDIT = OVER APPLIED and must adjust to clean holding account to 0 ---- manufacturing overhead XXX cost of goods sold XXX

Answer 48

cost goes to raw materials --when they're used it goes to overheated holding account until applied to WIP DIRECT AND INDIRECT IN RAW MATERIAL COSTS Job cost sheets are also subsidiary ledgers for accts - for WIP inv

Answer 49

1. DIRECT MATERIAL COSTS - determined by material requisition forms noting amt. and cost of raw materials released to each job 2. DIRECT LABOR COSTS - require employees to keep TIME CARDS noting # hours worked on specific job 3. MANUFACTURING OVERHEAD COSTS - applied on estimated basis using predetermined overhead rate on some activity - -direct labor hours, material costs, machine hours) - measured for each job

Answer 50

1. DIRECT MATERIAL COSTS - determined by material requisition forms noting amt. and cost of raw materials released to each job 2. DIRECT LABOR COSTS - require employees to keep TIME CARDS noting # hours worked on specific job 3. MANUFACTURING OVERHEAD COSTS - applied on estimated basis using predetermined overhead rate on some activity - -direct labor hours, material costs, machine hours) - measured for each job

Answer 51

Manufacturing overhead 1000 | salary payable 1000

Answer 52

Job cost record added balance for DM, DL, and MfgOv = total cost $1,901 finished goods inv. 1901 WIP inv. 1901 Shipped to customers for sales price of 3000 on account A/R 3000 sales rev 3000 Cost of goods sold 1901 finished goods inv. 1901 GROSS MARGIN = 3000 - 1901 = $1,099 ($109.0 per chair)

Answer 53

Job cost record added balance for DM, DL, and MfgOv = total cost $1,901 finished goods inv. 1901 WIP inv. 1901 Shipped to customers for sales price of 3000 on account A/R 3000 sales rev 3000 Cost of goods sold 1901 finished goods inv. 1901 GROSS MARGIN = 3000 - 1901 = $1,099 ($109.0 per chair)

Answer 54

completed 47 orders in Jan. with 7 in process at month end 1. raw materials purchased on account 102,675 Raw materials inv. 102,675 A/P 102,675 2. raw materials for specific job is 90,430 with 80% direct materials and rest indirect materials WIP inv. 72,344 Mfg. overhead 18,086 raw materials inv. 90,430 3. total direct labor is 24,600 WIP inv. 24,600 cash 24,600 4. mfg. overhead applied at predetermined rate of $26 per DL hours of 1,640 hours (26 X 1640 = 42,640) WIP inv. 42,640 mfg. overhead 42,640 5. superviser salaries incurred and paid with indirect labor of 7000 mfg. overhead 70000 cash 7000 6. Depreciation of machine for month of 5500 Mfg. overhead 5500 Accum. deprec. 5500 7. selling and admin. expenses were 46,514 selling/admin. exp. 46,514 cash 46,514 CLOSE MANUFACTURING OVERHEAD 45,140 (DR) 43,290 (applied CR) 1850 (DR balance = UNDER APPLIED) Adjust Cost of goods sold 1850 mfg. overhead 1850

Answer 55

applied manufacturing overhead EXCEEDED actual manufacturing overhead costs for period

Answer 56

applied manufacturing overhead EXCEEDED actual manufacturing overhead costs for period

Answer 57

``` PRODUCT COSTS For merchandising bus. ----inventory purchases For manufacturing bus. ----direct materials ----direct labor ----manuf. overhead ``` PERIOD COSTS ---selling and administrative expense when incurred BEHAVIOR OF COSTS CHANGES WITH VOLUME

Answer 58

units of goods purchased or produced and how many of those units we actually sell simplifying assumption ---the # units we produce or purchase will be the same as the # we sell --Understanding how costs behave with changes in volume allows management to understand the effect on profits given changes in volume COST VOLUME-PROFIT ANALYSIS (CVP) - --how much profit we generate with changes in volume - ---first identify costs as variable and fixed

Answer 59

Varies in total with changes in volume -material costs, direct labor, sales commissions graphed is an accelerating slope with VC on x axis and # units on y axis --> diagonal up ---every increase in volume is an increase in cost at the SAME RATE To find VC per unit, $20,000/1000 units = $20/1 ``` HAVE A FIXED PER UNIT COST!! ---increase volume over time doesn't have to always increase cost - assume in this class it is constant ```

Answer 60

Range or volume that is reasonably anticipated for operations --not (0, -infinity) maybe assume (400,000 - 600,000 units) assume that within RELEVANT RANGE VC per unit is a straight slope - constant slope

Answer 61

costs which are fixed/constant regardless of changed in volume ---building rent graph fixed costs PER UNIT rather than TOTAL fixed costs ---FC on x axis and # units on y axis (units sold in period/fixed cost) = although fixed, per unit will change Fixed costs are fixed in TOTAL but they VARY PER UNIT with changes in volume ---within RELEVANT RANGE a fixed cost is assumed to be FIXED throughout that range of volume - even tho in real world there is NO fixed costs perfectly

Answer 62

increasing salaries each year ---so each year it is a fixed line - so looks like steps on the graph (salaries on x and volume per year on y) - first year 40,000 second year 80,000 third year 120,000 Assume in RELEVANT RANGE it is a fixed cost or variable - not perfect but we force it into a category with an average - --shows CVP is not always perfect - --show an AVERAGE fixed costs btwn 2 amounts

Answer 63

(THIS IS IN LESSON 13) costs which have fixed and variable portion (x axis is total rent costs per month and y axis is vol. in sales rev. per month) ---intersection = total fixed costs portion example Rented building base rent and additional meant (10% of total sales rent) --base rent at $0 vol. sales rev. = $1000 per month --rent increases with increase in sales rev. --intersection = total fixed cost portion Slope = VC/unit $1000 fixed / $10,000 change in vol. = $.10 = 10% increase VC

Answer 64

What portion is fixed and what portion is variable 1. scattergraph or visual-fit method 2. High-low method 3. least squares method (in adv. class)

Answer 65

management believes utility costs are mixed in behavior with changes in vol. Determine if they are mixed and calc. VC and FC with both scattergraph and high-low method

Answer 66

``` management believes utility costs are mixed in behavior with changes in vol. Determine if they are mixed and calc. VC and FC with both scattergraph and high-low method Month - # units produced - utility costs Jan - 10,000 - $17,000 Feb. - 7000 - 14000 Mar. - 15000 - 24000 Apr. - 8000 - 15,000 May - 13,000 - 20,000 Jun - 12,000 - 18,000 ``` SCATTERGRAPH METHOD plot them on graph with total utility costs on x axis and vol. in thousands on y axis (# units produced) ---connect dots with a line of best fit - choose 2 points that are most on that line (Jan. mar) Jan = ($17000, 10000) Mar = ($24000, 15000) --difference = ($7000, 5000) can see variable portion, increase vol = increase cost - -try to make it straight line to find fixed - -intersection pt. at 0 vol. (y intercept) = $3000 cost - $3000 = FIXED COST COMPONENT - --find SLOPE to find VARIABLE COST COMPONENT (7000 / 5000) = $1.40 VC/unit TOTAL utility costs = VC + FC March = $24,000 total = (VC, $1.40 X 15,000 units) + X(FC) $24,000 = $21,000 + X X = $3000 fixed costs not perfect! approximation method to determine!!

Answer 67

``` management believes utility costs are mixed in behavior with changes in vol. Determine if they are mixed and calc. VC and FC with both scattergraph and high-low method Month - # units produced - utility costs Jan - 10,000 - $17,000 Feb. - 7000 - 14000 Mar. - 15000 - 24000 Apr. - 8000 - 15,000 May - 13,000 - 20,000 Jun - 12,000 - 18,000 ``` HIGH-LOW METHOD use same graph but instead of trying to make the line fit the points, make the line so it passes through the high point and the low point Mar = ($24000, 15000 units) Feb = ($14000, 7000 units) SLOPE = VC PER UNIT = $10,000

Answer 68

``` management believes utility costs are mixed in behavior with changes in vol. Determine if they are mixed and calc. VC and FC with both scattergraph and high-low method Month - # units produced - utility costs Jan - 10,000 - $17,000 Feb. - 7000 - 14000 Mar. - 15000 - 24000 Apr. - 8000 - 15,000 May - 13,000 - 20,000 Jun - 12,000 - 18,000 ``` HIGH-LOW METHOD use same graph but instead of trying to make the line fit the points, make the line so it passes through the high point and the low point Mar = ($24000, 15000 units) Feb = ($14000, 7000 units) SLOPE = VC PER UNIT = $10,000(diff. in cost - increase in cost) / 8000 (change in vol.) $10000 / 8000un. = $1.25 per unit ``` TOTAL COST = VC + FC At high point: march $24,000 = ($1.25 X 15000 units) + FC 24000 = 18750 + FC FC = 5250 ( it is fixed so should be same regardless of vol. - check using low point) ``` at low point: Feb. $14,000 = ($1.25 X 7000 units) + fC 14000 = 8750 + FC FC = 5250 SCATTERGRAPH IS BETTER BC IT TAKES AVERAGE OF DATA WHERE HIGH LOW ONLY USES TWO POINTS CVP ANALYSIS - GRAPH OR EQUATION APPROACH

Answer 69

Vol. in thousands (# units produced and sold) on y axis - total costs and total revenues on x axis - -have fixed cost line which is straight (at $120,000) - -have total cost line (FC + VC_ - -have sales revenue line (sell for $80 per unit) SLOPE = VC/unit = $20 slope = sales price per unit $160,000 / 2000 units = $80 per unit Breakeven point is where revenues = total costs --look at graph where the sales rev. line intersects with the total cost line = 2000 units to breakeven

Answer 70

revenue = total costs (how many units to sell) Sales revenues - VC - FC = 0 (NI) ($80 X 2000) - ($20 X 2000) - $120,000 = 0 160000 - 40000 - 120000 = 0 --must sell 2000 units to breakeven

Answer 71

revenue = total costs (how many units to sell) Sales revenues - VC - FC = 0 (NI) ($80 X 2000) - ($20 X 2000) - $120,000 = 0 160000 - 40000 - 120000 = 0 --must sell 2000 units to breakeven

Answer 72

graphically look at vol. up to total cost line and total revenue line - --profit = total rev. at point in vol - total cost at pt - --for 4000 units = $320,000 - 200,000 = 120,000 profit Calc. with equation at 4000 units of volume SALES REV - VC - FC = NI (80 X 4000) - (20 X 4000) - (120,000) = X 320000 - 80000 - 120000 = X 120000 = X

Answer 73

TRUE - fixed costs are constant but FIXED COSTS PER UNIT are effected by volume

Answer 74

SLOPE = VC/unit = (change cost $) / (change vol. units) ALWAYS $ / # units

Answer 75

a line of best fit to see correlation btwn costs (x) and volume (y)

Answer 76

TRUE | ---not office building rent or direct material costs in manufactured product

Answer 77

TRUE | ---not office building rent or direct material costs in manufactured product

Answer 78

SALES REVENUE LINE ---starts at (0, 0) in the lower left corner TOTAL COST LINE - --starts up on the x axis at a certain point - --this y intercept/starting point is the amount of fixed costs!! BREAKEVEN POINT ---where two lines cross (number of volume to break even and amount in sales)

Answer 79

``` (GAAP doesn't distinguish FC and VC) Sales rev. xxx Less: total VC (xxx) contrubuted margin XXX Less: total FC (xxx) operating income XXX ``` Difference btwn sales rev. and ALL VC = amt. before fixed costs!

Answer 80

Can be used with historical info. or prospective budgeted info to respond to questions: 1. How many units did we need to sell last year or do we need to sell next year to BREAKEVEN? 2. How many units did we need to sell last year or do we need to sell next year to generate a CERTAIN NET INCOME? 3. What effect would changes in sales price, costs, or volume have on net income?

Answer 81

Can be used with historical info. or prospective budgeted info to respond to questions: 1. How many units did we need to sell last year or do we need to sell next year to BREAKEVEN? 2. How many units did we need to sell last year or do we need to sell next year to generate a CERTAIN NET INCOME? 3. What effect would changes in sales price, costs, or volume have on net income?

Answer 82

``` basic equation: SR - VC - FC = NI ---SR = (sales price/unit X # units) ---VC = (VC/unit X # units) ---FC = stays constant ```

Answer 83

VC as a % of Sales rev. VC = $60,000 SR = $100,000 (60,000 / 100,000) = 60% 60% X 100,000 = to find VC if didn't tell you it was $6 per unit already

Answer 84

Sales revenue - variable costs CM - FC = NI (SR = $10/unit, VC = $6/unit) = CM = $4/unit ``` CM ratio (CM as a % of SR) (40% X $100,000) ```

Answer 85

Sales revenue - variable costs CM - FC = NI (SR = $10/unit, VC = $6/unit) = CM = $4/unit ``` CM ratio (CM as a % of SR) (40% X $100,000) ```

Answer 86

sales col = 10,000 units NI = $100,000 FC = 25,000 VC ratio = 70% SR - VC - FC = NI SR = (SP/UNIT X # UNITS) = (10,000 X 10000x) VC = (70% X SP/unit X # units) = (.70 X 10000x) = 7000x SR (10,000x) - VC (7000x) = 3000x 3000x - 25,000 = 100,000 3000x = 125,000 x = $41.67 per unit

Answer 87

BEV SR = 350,000 NI = 50,000 CM ratio = 25% ``` CM - FC = NI CM = (CM RATIO X SR) = .25x .25x - FC = 0 (breakeven) --FC same no matter what volume so calc. FC at different volume (.25 X 350,000) - FC = 50,000 FC = 37,500 ``` .25x - 37,500 = 50,000 x = $150,000

Answer 88

BEV SR = 350,000 NI = 50,000 CM ratio = 25% ``` CM - FC = NI CM = (CM RATIO X SR) = .25x .25x - FC = 0 (breakeven) --FC same no matter what volume so calc. FC at different volume (.25 X 350,000) - FC = 50,000 FC = 37,500 ``` .25x - 37,500 = 50,000 x = $150,000

Answer 89

``` FC = 39,000, VC ratio = 70%, SP/unit = $10 SR - VC - FC = NI SR = $10x VC = (70% x $10 x X) FC = 39,000 ``` 10x - 7x - 39,000 = 0 3x = 39,000 = 13,000 units

Answer 90

BEV vol = 25,000 units, FC - $50,000, VC/unit = $7 SR - VC - FC = NI 25,000x - (25,000 X $7) - 50,000 = 0 25,000x = 225,000 x = $9 SR/unit CM/unit = SR/unit - VC/unit $9 - $7 = $2/unit

Answer 91

BEV vol = 25,000 units, FC - $50,000, VC/unit = $7 SR - VC - FC = NI 25,000x - (25,000 X $7) - 50,000 = 0 25,000x = 225,000 x = $9 SR/unit CM/unit = SR/unit - VC/unit $9 - $7 = $2/unit

Answer 92

``` SR = $20/unit NI = 100,000 vol = ? FC = 40,000 CM ratio = 60% ``` (60% X x X $20) - 40,000 = 100,000 12x = 140,000 x = 11,667 units

Answer 93

``` SR = $100/unit = $100,000 # units sold = 1000 units fixed costs = 20,000 NI = 30,000 ``` 100,000 - 1000x - 20,000 = 30,000 x = $50/unit = VC 100x - 50x - 20,000 = 0 50x = 20,000 x = 400 units to break even

Answer 94

``` SR = $100/unit = $100,000 # units sold = 1000 units fixed costs = 20,000 NI = 30,000 ``` 100,000 - 1000x - 20,000 = 30,000 x = $50/unit = VC 100x - 50x - 20,000 = 0 50x = 20,000 x = 400 units to break even in sales rev. to break-even ($100 X 400 units) = $40,000

Answer 95

VC ratio = 65%, FC = $14,700 SR = x VC = .65x FC = 14,700 x - .65x - 14,700 = 0 .35x = 14,700 x = $42,000

Answer 96

SR = 500,000 NI = $20,000 VC ratio = 60% FC = ? 500,000 - (60% X 500,000) - FC = 20,000 200,000 - FC = 0 FC = 200,000 100x - 60x - 200,000 = 20,000 40x = 220,000 x = 5,500 units

Answer 97

SR = 500,000 NI = $20,000 VC ratio = 60% FC = ? 500,000 - (60% X 500,000) - FC = 20,000 200,000 - FC = 0 FC = 200,000 100x - 60x - 200,000 = 20,000 40x = 220,000 x = 5,500 units

Answer 98

``` 1. Show detail and totals of costs A.) manufacturing (product) costs ---VC/unit - DM, DL, Mfg. Overhead (include depreciation) = total VC PER UNIT at end ---FC/month - mfg. overhead - TOTAL B.) selling and administrative costs ---VC/unit ---FC/month ``` 2. Find # units to breakeven 3. then can solve for others too for profit/loss

Answer 99

decisions of long-range questions as... - -which products to make and sell - -how to market the products - -how to finance the resources necessary to achieve the organizations goals - -consider debt or equity financing

Answer 100

planning for the acquisition of operational or long-term assets such as PP&E --What PP&E we need and how to obtain them

Answer 101

detailed plans of immediate goals for prospective sales, production, expenses, cash flows and fin stmt results

Answer 102

Cash flows (inflows and outflows) - -allows you to anticipate potential outflows to prioritize - to see how you spend your money - -look at a person's checkbook to see where priorities lie - see goals/objectives

Answer 103

``` COMMUNICATION SETTING GOALS/OBJECTIVES PROBLEM RESOLUTION COORDINATION AUTHORIZATION PERFORMANCE EVALUATION MOTIVATION ``` (highest problem with marriage Benefits with BUSINESS budgeting - same as family - mgmt communications budgetary process usually initiated with a problem with cash

Answer 104

``` COMMUNICATION SETTING GOALS/OBJECTIVES PROBLEM RESOLUTION COORDINATION AUTHORIZATION PERFORMANCE EVALUATION MOTIVATION ``` (highest problem with marriage Benefits with BUSINESS budgeting - same as family - mgmt communications budgetary process usually initiated with a problem with cash

Answer 105

to project sales volume of goods at anticipated sales price Primary source of cash inflows comes from sales to customers - start here in budget, estimate ---expected sales volume will also determine your operating expenses - driven by ANTICIPATED SALES VOLUME *Anticipated is important to see what happens if we meet our expected sales volume

Answer 106

Sales budget - how much we expect to sell - --> selling and admin. exp. budget - -->inv. purchases budget - ------->both go to Cash flow budget cash flow budget - --> pro-forma income stmt - --> pro-forma balance sheet PRO-FORMA = anticipated, estimated fin. stmts

Answer 107

Sales budget - # units we expect to sell - -->Selling/admin. budget - -->production budget (# units we need to produce to meet sales volume budget) - -------->direct materials budget - -------->direct labor budget - -------->mfg. overhead budget - ----------------->cash flow budget (from steps under production budget and from selling and admin. exp budget) cash flow budget - --> pro-forma income stmt - --> pro-forma balance sheet

Answer 108

Sales budget - # units we expect to sell - -->Selling/admin. budget - -->production budget (# units we need to produce to meet sales volume budget) - -------->direct materials budget - -------->direct labor budget - -------->mfg. overhead budget - ----------------->cash flow budget (from steps under production budget and from selling and admin. exp budget) cash flow budget - --> pro-forma income stmt - --> pro-forma balance sheet

Answer 109

Company makes and sells food supplement drink that comes in one pint carton. - -one carton made by mixing water w/ 6 oz. powder mix - -product sells for $3.00 a carton - -budgeted sales for Sept (20,000) Oct (22,000) Nov (25,000) SALES BUDGET Sept. Oct. Nov. Units to be sold 20,000 22,000 25,000 sales price/unit X $3.00 X 3.00 X 3.00 TOTAL sales rev. 60,000 66,000 75,000 UNITS TO BE SOLD - drives production budget TOTAL SALES REV - drives cash flow budget

Answer 110

Company makes and sells food supplement drink that comes in one pint carton. - -one carton made by mixing water w/ 6 oz. powder mix - -product sells for $3.00 a carton - -budgeted sales for Sept (20,000) Oct (22,000) Nov (25,000) SALES BUDGET Sept. Oct. Nov. Units to be sold 20,000 22,000 25,000 sales price/unit X $3.00 X 3.00 X 3.00 TOTAL sales rev. 60,000 66,000 75,000 UNITS TO BE SOLD - drives production budget TOTAL SALES REV - drives cash flow budget

Answer 111

Mgmt wants to keep balance of finished inv. on hand to 20% of following months anticipated sales vol. to be able to handle unexpected --there are 4000 units finished goods on 8/31/x3 PRODUCTION BUDGET Sept. Oct. Nov. units to be sold 20,000 22.000 25000 desired ending inv.* 4,400 5000 24,400 27,000 beginning inv. (4000) (4,400) units to be produced 20,400 22.600 *calc. based on 20% of subsequent monthly budgeted sales PREVIOUS MONTHS DESIRED INV BALANCE BECOMES NEXT MONTHS BEGINNING INV. BALANCE! Companies today don't want extra inv. --do "just in time" production to be more efficient and carry less on hand

Answer 112

PRODUCT COSTS | variable costs per unit

Answer 113

PRODUCT COSTS variable costs per unit ----direct materials 6 oz. mix $.90/unit carton $.20/unit ----direct labor .10/unit ----mfg. overhead .30/unit fixed mfg. overhead ----per month* 7000 *amt includes 1500 of equipment depreciation/month Mgmt. likes to have direct materials inv.. = to 30% of following months budgeted materials usage - there are 6120 6 oz. packets of mix and 6120 cartons in materials inv. on 8/31/XI MATERIALS USAGE BUDGET SEP. OCT. units to be PRODUCED 20,400 22,600 (bottom # in production budget) one 6 oz. mix and one carton per unit produced X 1 X 1 mix and cartons to be USED 20,400 22,600 MATERIALS PURCHASE BUDGET SEPT. OCT. units of mix/cartons to be USED 20,400 22.600 desired ending inv. * 6,780 ? 27,180 ? beginning inv. (6,120) (6,780) mix/cartons to PURCHASE 21,060 ? price per mix/carton X 1.10 X 1.10 TOTAL material purchases $23,060 ?

Answer 114

DIRECT LABOR BUDGET SEPT. OCT. units to be PRODUCED 20,400 22,600 labor cost per unit X .10 X .10 TOTAL direct labor $2,040 $2,260

Answer 115

PRODUCT COSTS variable costs per unit ----direct materials 6 oz. mix $.90/unit carton $.20/unit ----direct labor .10/unit ----mfg. overhead .30/unit fixed mfg. overhead ----per month* 7000 *amt includes 1500 of equipment depreciation/month Mgmt. likes to have direct materials inv.. = to 30% of following months budgeted materials usage - there are 6120 6 oz. packets of mix and 6120 cartons in materials inv. on 8/31/XI MATERIALS USAGE BUDGET SEP. OCT. units to be PRODUCED 20,400 22,600 (bottom # in production budget) one 6 oz. mix and one carton per unit produced X 1 X 1 mix and cartons to be USED 20,400 22,600 MATERIALS PURCHASE BUDGET SEPT. OCT. units of mix/cartons to be USED 20,400 22.600 desired ending inv. * 6,780 ? 27,180 ? beginning inv. (6,120) (6,780) mix/cartons to PURCHASE 21,060 ? price per mix/carton X 1.10 X 1.10 TOTAL material purchases $23,060 ? *calc. based on 30% subsequent months budgeted usage

Answer 116

DIRECT LABOR BUDGET SEPT. OCT. units to be PRODUCED 20,400 22,600 labor cost per unit X .10 X .10 TOTAL direct labor $2,040 $2,260

Answer 117

Budget selling/admin. = $.40/unit of VC and 5000/mont FC which include $700 budgeted depreciation exp. Assumptions for sept. cash flow budget - -all sales on account - 60% sales collected in onto of sales with 40% in following month - no uncollectibles - A/R balance 8/31 = $21,000 - -direct materials always purchased on account with 50% paid in month of purchase and rest paid following month - A/P balance 8/31 is $10,500 - -all direct labor, overhead and selling costs paid in month incurred (not always in bus.) - -cash balance at beginning of month is 6000 and company has no income taxes CASH FLOW BUDGET

Answer 118

Budget selling/admin. = $.40/unit of VC and 5000/mont FC which include $700 budgeted depreciation exp. Assumptions for sept. cash flow budget - -all sales on account - 60% sales collected in onto of sales with 40% in following month - no uncollectibles - A/R balance 8/31 = $21,000 - -direct materials always purchased on account with 50% paid in month of purchase and rest paid following month - A/P balance 8/31 is $10,500 - -all direct labor, overhead and selling costs paid in month incurred (not always in bus.) - -cash balance at beginning of month is 6000 and company has no income taxes CASH FLOW BUDGET SEPT. beginning cash 6000 ADD: collection A/R: current month* 36,000 preceding month(beg. A/R) 21,000 63,000 deduct disbursements: direct materials- current month* (11,583) preceding month(A/P beg.) (10,500) direct labor (2,040) mfg. overhead- variable** (6,120) fixed (exclude depr. of 1500) (5500) selling/admin.- variable*** (8000) fixed (exclude depr. 700) (4300) cash balance/(deficiency) 14,957 cash capitalization required 0 ending cash balance $14,957 * collections of A/R calc. at 6-% in month of sale and 40% in subsequent month (to find current month use "total sales rev." from sales budget = ($60,000 X 60%) = $36,000) * purchase of direct materials on account calc. at 50% in month of purchase and 50% in subsequent month (to find current month use "total material purchases" in material purchase budget = ($23,166 X 50%) = 11,583) * *VC overhead calc. at $.30 times the # units budgeted for production (look at units to be PRODUCED in production budget = ($20,400 X $.30) = 6,120) * **VC selling/admin. calc. at $.40 times # units budgeted for SALE - (look at sales budget for units to be SOLD = (20,000 X .40) = 8000) START WITH BEG. BALANCE THEN PUT IN ALL INFLOWS AND OUTFLOWS TO GET AN END BALANCE

Answer 119

Budget selling/admin. = $.40/unit of VC and 5000/mont FC which include $700 budgeted depreciation exp. Assumptions for sept. cash flow budget - -all sales on account - 60% sales collected in onto of sales with 40% in following month - no uncollectibles - A/R balance 8/31 = $21,000 - -direct materials always purchased on account with 50% paid in month of purchase and rest paid following month - A/P balance 8/31 is $10,500 - -all direct labor, overhead and selling costs paid in month incurred (not always in bus.) - -cash balance at beginning of month is 6000 and company has no income taxes CASH FLOW BUDGET SEPT. beginning cash 6000 ADD: collection A/R: current month* 36,000 preceding month(beg. A/R) 21,000 63,000 deduct disbursements: direct materials- current month* (11,583) preceding month(A/P beg.) (10,500) direct labor (2,040) mfg. overhead- variable** (6,120) fixed (exclude depr. of 1500) (5500) selling/admin.- variable*** (8000) fixed (exclude depr. 700) (4300) cash balance/(deficiency) 14,957 cash capitalization required 0 ending cash balance $14,957 * collections of A/R calc. at 6-% in month of sale and 40% in subsequent month (to find current month use "total sales rev." from sales budget = ($60,000 X 60%) = $36,000) * purchase of direct materials on account calc. at 50% in month of purchase and 50% in subsequent month (to find current month use "total material purchases" in material purchase budget = ($23,166 X 50%) = 11,583) * *VC overhead calc. at $.30 times the # units budgeted for production (look at units to be PRODUCED in production budget = ($20,400 X $.30) = 6,120) * **VC selling/admin. calc. at $.40 times # units budgeted for SALE - (look at sales budget for units to be SOLD = (20,000 X .40) = 8000) START WITH BEG. BALANCE THEN PUT IN ALL INFLOWS AND OUTFLOWS TO GET AN END BALANCE

Answer 120

Sell cakes $10 per unit --budgeted sales volume: Jan (25,000) Feb (30,000) Mar (35,000) --70% sales on account and A/R expected to be collected: 50% in month of sale 35% in month following month of sale 10% in second month following month of sale 5% uncollectible determine amount of budgeted cash inflows for march! Cash collections in march: --from Jan. (25,000 X $10 X 70% X 10%) = 17,500 --from Fen. (30,000 X $10 X 70% X 35%) = 73,500 --from March (35,000 X $10 X 70% X 50%) = 122,500 --cash sales in march = (35,000 X 30% X $10) = 105,000 TOTAL = $318,500

Answer 121

Sell cakes $10 per unit --budgeted sales volume: Jan (25,000) Feb (30,000) Mar (35,000) --70% sales on account and A/R expected to be collected: 50% in month of sale 35% in month following month of sale 10% in second month following month of sale 5% uncollectible determine amount of budgeted cash inflows for march! Cash collections in march: --from Jan. (25,000 X $10 X 70% X 10%) = 17,500 --from Fen. (30,000 X $10 X 70% X 35%) = 73,500 --from March (35,000 X $10 X 70% X 50%) = 122,500 --cash sales in march = (35,000 X 30% X $10) = 105,000 TOTAL = $318,500

Answer 122

budgeted sales vol = Jan (25,000) Feb (30,000) Mar (35,000) - -wants to maintain finished goods inv. at 30% following months sales - inv. at start of Jan. is 7000 units - -one unit of production requires 3 lbs of flour which costs $2.00 per lb. - keep flour inv. constant with current inv. balance - -buys raw materials on account paying 50% in month of purchase and 50% in following month PRODUCTION BUDGET units to be SOLD desired end. inv* beg. inv. balance units to be PRODUCED

Answer 123

budgeted sales vol = Jan (25,000) Feb (30,000) Mar (35,000) - -wants to maintain finished goods inv. at 30% following months sales - inv. at start of Jan. is 7000 units - -one unit of production requires 3 lbs of flour which costs $2.00 per lb. - keep flour inv. constant with current inv. balance - -buys raw materials on account paying 50% in month of purchase and 50% in following month PRODUCTION BUDGET Jan. Feb. units to be SOLD 25,000 30,000 desired end. inv* 9000 10,500 beg. inv. balance (7000) (9000) units to be PRODUCED 27,000 31,500 MATERIALS USAGE BUDGET Jan. Feb. units to be produced 27,000 31,500 X 3 lbs. per unit X 3 X 3 lbs. used in production 81,000lbs 94500lbs MATERIALS PURCHASE BUDGET Jan. Feb. lbs. used in production 81,000 94,500 budgeted purchase cost per lb. X $2 X $2 cost of material purchases 162000 189000 paid on acct. X (50%) X (50%) then add those two balances to get total outflow for purchases in feb = 175,500

Answer 124

budgeted sales vol = Jan (25,000) Feb (30,000) Mar (35,000) - -wants to maintain finished goods inv. at 30% following months sales - inv. at start of Jan. is 7000 units - -one unit of production requires 3 lbs of flour which costs $2.00 per lb. - keep flour inv. constant with current inv. balance - -buys raw materials on account paying 50% in month of purchase and 50% in following month PRODUCTION BUDGET Jan. Feb. units to be SOLD 25,000 30,000 desired end. inv* 9000 10,500 beg. inv. balance (7000) (9000) units to be PRODUCED 27,000 31,500 MATERIALS USAGE BUDGET Jan. Feb. units to be produced 27,000 31,500 X 3 lbs. per unit X 3 X 3 lbs. used in production 81,000lbs 94500lbs MATERIALS PURCHASE BUDGET Jan. Feb. lbs. used in production 81,000 94,500 budgeted purchase cost per lb. X $2 X $2 cost of material purchases 162000 189000 paid on acct. X (50%) X (50%) then add those two balances to get total outflow for purchases in feb = 175,500

Answer 125

TRUE --ending material usage budget gives you amt. to be used in production - which is starting amount in materials purchase budget

Answer 126

units to be PRODUCED (selling 2000 so use that in sales budget to find total sales rev. and used to start the proaction budget to find units to be produced) --but units to be produced used in materials usage budget, materials purchase budget, and direct labor budget

Answer 127

units to be PRODUCED (selling 2000 so use that in sales budget to find total sales rev. and used to start the proaction budget to find units to be produced) --but units to be produced used in materials usage budget, materials purchase budget, and direct labor budget

Answer 128

TRUE | --cash flow budget is only cash inflows and cash outflows from the company

Answer 129

found by "cash capitalization required" added up from the cash budget

Answer 130

Depreciation - $.10/ unit PRODUCED | 10025 units produced = (10025 X .10) = $1003

Answer 131

PRODUCTION BUDGET

Answer 132

MATERIALS PURCHASED BUDGET

Answer 133

MATERIALS PURCHASED BUDGET

Answer 134

long-term - occasional - not everyday ? 1. Whether to make or buy your product 2. whether to accept a special customer order 3. whether to discontinue or add a product line 4. whether to install a new computerized accounting system

Answer 135

relevant costs and revenues are the costs or rev. which affect out decision ---relevant costs/rev = differential costs/rev differential costs/rev are future costs/rev --often referred to as DIRECT COSTS and rev. of a decision alternative and are AVOIDABLE if the other option is selected

Answer 136

Fly to Cali - -airfare (differential cost bc varies among choices - avoidable if i drive - -airport parking - -auto gas/wear on car (100 miles) TAKE OFF BC THERE IS 1400 MILES IF DRIVE TO CALI SO THE DIFFERENTIAL COST IS 1300 BC THE 100 MILES IS THERE IN BOTH OPTIONS SO NOT DIFFERENTIAL - car rental drive to cali - -Auto gas/wear (1400 for drive - but differential cost is 1300) - -Auto wear in cali (500 miles) - -las vegas fun - -opportunity cost Relevant costs vary btw choices you are deciding btwn - foot and hotel in cali are not relevant bc they are a cost no matter which choice you choose

Answer 137

foregone revenues arising from a decision alternative --flying get to cali early to do business and make rev. - if drive won't get there early enough to make the extra revenue - so it is an opportunity cost differentiated on the driving side option (or a foregone revenue)

Answer 138

foregone revenues arising from a decision alternative --flying get to cali early to do business and make rev. - if drive won't get there early enough to make the extra revenue - so it is an opportunity cost differentiated on the driving side option (or a foregone revenue)

Answer 139

past costs - PAST COSTS ARE ALWAYS IRRELEVANT NO MATTER WHAT - -paid for car to take trips should that be involved in decision process? no already paid and can't recover cost with either decision - -car insurance - -spent $ on a movie - hear of a party and rather go - think choose movie bc already invest in it - NO! Cost still there no matter what - choose what you would have more fun doing - what you would benefit most from in future! OK TO WALK AWAY FROM YOUR INVESTMENTS! BASED ON FUTURE BENEFITS!!

Answer 140

ABC inc. game manufacturing company might contract out the manufacture of its chess boards. --Malaysian company will make boards $5.10/unit --current costs to make boards themselves: DM = $2.50 DL = $1.50 VC overhead = .75 fixed overhead = .50 (fixed usually not per unit) TOTAL is $5.25/unit TOTAL w/o fixed = $4.75/unit Fixed overhead cost per unit calc. based on a volume of 100,000 units - total fixed cost of overhead is $50,000 (changes per unit as volume increases or decreases) - will change the total manufacturing cost if vol. changes ---if production discontinues, 60% of fixed costs ($30,000 can be avoided) (other 40% is not a differentiated cost bc it can't be avoided with either option) Assume sales volume is anticipated 100,000 units. Would it be economically better to buy chess boards from Malaysia or make them ourselves? Differentiated costs: BUY MAKE Contract cost ($5.10 X 100,000 units) 510,000 fixed supervisor salary 30,000 variable product costs ($4.75 X 100,000 units) 475,000 TOTAL COSTS 510,000 505,000 SO MAKING WOULD BE LESS EXPENSIVE

Answer 141

Buy or make with 80,000 units contract costs fixed supervisory salary

Answer 142

Buy or make with 80,000 units BUY MAKE contract costs (5.10 X 80,000units) 408,000 fixed supervisory salary 30,000 Variable product costs (4.75 X 80,000units) 380,000 TOTAL COSTS 408,000 410,000 SO BUYING WOULD BE BETTER WITH LESS VOLUME BEING SOLD Decrease vol. = better to buy products increase vol. = better to make yourself --bc fixed costs are the same no matter how much volume - allocated better among more volume At 100,000 units can also sublease space (Rent cost) for 10,000 - opportunity cost for making them bc you forego that revenue bc you need the space BUY MAKE contract cost (5.10 X 100,000units) 510,000 fixed supervisor salary 30,000 Variable product cost (4.75 X 100,000units) 475,000 opportunity cost foregone sublease rev. 10,000 Total costs 510,000 515,000 BUYING WOULD BE BETTER opp. cost could also be written on the buy side as a sublease rev. - whatever makes more sense to you - same net effects

Answer 143

ABC inc had net income last yr of $85,000 which included results from cheers product line DIFFERENTIATED COSTS KEEP DROP sales rev. 150,000 0 Variable product costs (90,000) 0 variable period costs (30,000) 0 contributed margin 30,000 0 DIRECT fixed costs (product and period) (20,000) 0 income before indirect costs 10,000 INDIRECT (allocated) fixed/period costs (15,000) (15,000) operating income / (loss) (5000) loss (15,000) DIRECT fixed costs - are those associated with the product that could be dropped otherwise INDIRECT fixed costs - will continue to have either way - it will just be allocated somewhere else - so not a differentiated cost and should be taken off bc they are there either way ---same net effect - shows a 10,000 loss if you stop production bc you would have made a 10,000 profit

Answer 144

ABC considering large order from important customer for 10,000 units of board game at a discounted price

Answer 145

ABC considering large order from important customer for 10,000 units of board game at a discounted price --what would be lowest price possible before ABC would actually lose obey on sale given game costs: direct materials $7.00/unit direct labor $2.50/unit variable overhead 1.00/unit variable selling .20/unit Additional overhead costs of $2000 incurred on this special order - all other fixed overhead and selling are unaffected by order Differential PER UNIT costs of special order Direct materials 7.00 direct labor 2.50 variable mfg. overhead 1.00 variable selling/admin .20 fixed mfg overhead ($2000 / 10,000 units) .20 total per unit cost $10.90 per unit

Answer 146

Company manufacturers bicycles and tricycles and is successful in marketing products and can sell as many units as they produce of either product contribution margin per unit is: BIKE TRI sales rev. $70 $50 variable product/period costs (40) (25) contributed margin 30 25 fixed costs are same for either product (irrelevant bc not differentiated) --production volume based on direct labor hours and it takes 3 hours for bicycle and 2 hours for tricycle - direct labor hours employable by company are limited due to factory size and limited capital for expansion --make more profit with bicycles (in contributed margin) but can't make as much volume bc they take longer BIKE TRI contributed margin per unit 30 25 direct labor hours required to produce / 3 / 2 contributed margin per hour $10/hr. $12.50/hr Make more profit with tricycles even tho they make less money per unit, but you can make more and it is more profitable per hour - so emphasize tricycles WITH THIS QUESTION YOU FIND CONTRIBUTED MARGIN PER UNIT BY SUBTRACTING REV - VC ---THEN FIND CONTRIBUTED MARGIN PER SOMETHING (HOUR - MONTH)

Answer 147

Company manufacturers bicycles and tricycles and is successful in marketing products and can sell as many units as they produce of either product contribution margin per unit is: BIKE TRI sales rev. $70 $50 variable product/period costs (40) (25) contributed margin 30 25 fixed costs are same for either product (irrelevant bc not differentiated) --production volume based on direct labor hours and it takes 3 hours for bicycle and 2 hours for tricycle - direct labor hours employable by company are limited due to factory size and limited capital for expansion --make more profit with bicycles (in contributed margin) but can't make as much volume bc they take longer BIKE TRI contributed margin per unit 30 25 direct labor hours required to produce / 3 / 2 contributed margin per hour $10/hr. $12.50/hr Make more profit with tricycles even tho they make less money per unit, but you can make more and it is more profitable per hour - so emphasize tricycles WITH THIS QUESTION YOU FIND CONTRIBUTED MARGIN PER UNIT BY SUBTRACTING REV - VC ---THEN FIND CONTRIBUTED MARGIN PER SOMETHING (HOUR - MONTH)

Answer 148

Joe's ice-cream makes and sells an ice cream brand at following per unit given a vol. of 1 million cartons per year: sales rev. = $2.00 per unit VC = (1.00 per unit) FC = (.35 per unit) - (1,000,000 X .35 = 350,000 total FC) TOTAL COST = $.65 ``` company is considering manufacture and sale of more premium brand of ice cream by further processing existing brand with additional ingredients - additional per unit costs so differential direct materials = 1.30 per unit direct labor = .30 per unit variable overhead = .10 per unit total extra cost = 1.70 per unit ``` brand would be sold for $4.00/unit (current is $2.00 per unit) - no additional selling costs or fixed overhead what would be effect on profits if 50% of the 1 million units of vol. were converted to premium production? Diff. rev/costs/ for 500,000 units of premium - -Diff. sales rev = $2.00 per unit ($2 more than regular) - -diff. product costs (1.70/unit) - wouldn't have with regular - -diffefrential profit = $.30 per unit 500,000units X $.30 = $150,000 additional profit

Answer 149

common costs in the production of two products at diff. grades IRRELEVANT - bc same in either decision and will be there regardless

Answer 150

ABC inc had net income last yr of $85,000 which included results from cheers product line DIFFERENTIATED COSTS KEEP DROP sales rev. 150,000 0 Variable product costs (90,000) 0 variable period costs (30,000) 0 contributed margin 30,000 0 DIRECT fixed costs (product and period) (20,000) 0 income before indirect costs 10,000 INDIRECT (allocated) fixed/period costs (15,000) (15,000) operating income / (loss) (5000) loss (15,000) DIRECT fixed costs - are those associated with the product that could be dropped otherwise - would be avoided if you got rid of the product INDIRECT fixed costs - will continue to have either way - it will just be allocated somewhere else - so not a differentiated cost and should be taken off bc they are there either way ---same net effect - shows a 10,000 loss if you stop production bc you would have made a 10,000 profit

Answer 151

common costs in the production of two products at diff. grades IRRELEVANT - bc same in either decision and will be there regardless

Answer 152

Space holds 10 boxes of cookies and contribution margin per unit is $1.00 --space holds 30 candy bars with contribution margin of $.25 per unit Cookie turnover is 4 times and candy bar turnover is 6 times COOKIES CANDY CM per unit 1.00 .25 # units per space 10 30 CM per inv. turn 10.00 7.50 inv. turn per month X 4 X 6 CM per month $40.00 $45.00 CANDY BARS SHOULD BE STOCKED

Answer 153

we included depreciation in the total variable manufacturing cost bc we used units of production method --if we had used a straight line method we would not have included it when deciding to make vs. buy - he could avoid all variable manufacturing costs except depreciation and rent --so on the diff. cost list btwn the two options, we EXCLUDED depreciation and rent bc you pay it with either option so it is not a differentiated cost

Answer 154

TRUE - bc fixed costs would be allocated to more units | --more volume becomes more profitable to make yourself

Answer 155

relevant - future costs that vary among decision alternatives sunk - past costs - irrelevant

Answer 156

for income $0-50, on income tax for income $51-100, tax rate = 50% for income above $100 is 60% how much income tax would you pay if you made... 50? = 0 51? = (1.00 X 50%) = $0.50 $100? = ($50 X 50%) = $25 You wouldn't pay for the first 50 but would have to pay the amount for the money after and same for each section then add it

Answer 157

tax base X tax rate = tax liability ``` base is 120 and 0-50 is 0%, 51-100 is 50%, and 101+ is 60% = 0 for first 50 = (50 X 50%) = $25 for second 50 = (20 X 60%) = 12 for rest = $37 tax liability ```

Answer 158

``` taxable income - income tax taxable estate - estate tax taxable gifts - gift tax (under 14,000 not taxed) taxable purchases - sales tax taxable property - property tax ```

Answer 159

tax liability / taxable income (overall tax burden / total income) if i make $150 = 55 / 150 = 36.7%

Answer 160

tax liability / taxable income (overall tax burden / total income) if i make $150 = 55 / 150 = 36.7% - -the 55 comes from first 50 free, second 50 tax rate is 50% and 3rd 50 tax rate is 60% - -total - 25 + 30 = 55 tax liability

Answer 161

tax base X tax rate = tax liability ``` base is 120 and 0-50 is 0%, 51-100 is 50%, and 101+ is 60% = 0 for first 50 = (50 X 50%) = $25 for second 50 = (20 X 60%) = 12 for rest = $37 tax liability ```

Answer 162

``` taxable income - income tax taxable estate - estate tax taxable gifts - gift tax (under 14,000 not taxed) taxable purchases - sales tax taxable property - property tax ```

Answer 163

tax liability / taxable income (overall tax burden / total income) if i make $150 = 55 / 150 = 36.7% - -the 55 comes from first 50 free, second 50 tax rate is 50% and 3rd 50 tax rate is 60% - -total - 25 + 30 = 55 tax liability

Answer 164

tax rate applied to next dollar earned

Answer 165

as you make more income, the tax rate increases on the margin --income taxes are progressive!!

Answer 166

- -receive $10,000 of income - -marginal tax rate is 30% - -what is my after tax benefit of income (10,000 X .3) = 3,000 (10000 - 3000) = 7000 7000 after tax benefit of income

Answer 167

income effect --must work more to receive same after-tax income (rates increasE) substitution effect --substitute leisure for work bc receive too little after-income if rates get too high

Answer 168

- -receive 10,000 of income (donate 10,000) (deductible charitable contribution) - -marginal tax rate is 30% - -what is my after tax cost of deduction 10000 X (1 - .30) = 7000 10000 expenditure costs me 7000 bc I pay 10,000 and save 3000 in taxes

Answer 169

- -receive 10,000 of income (donate 10,000) (deductible charitable contribution) - -marginal tax rate is 30% - -what is my after tax cost of deduction 10000 X (1 - .30) = 7000 10000 expenditure costs me 7000 bc I pay 10,000 and save 3000 in taxes

Answer 170

can we as individual investors in ACC 200 use our skills learned her to identify winning and losing stocks - NO! market is fast and efficient

Answer 171

- -diversity - don't put everything into one stock - -buy and hold for the long term (20-30yrs) - -RUN from guaranteed high returns

Answer 172

MANAGED FUNDS - -professional chooses stocks - -usually frequent changes in stocks - -attempt to out-guess - "time" market INDEX FUNDS - -stocks chosen by math rule - -few changes in stocks - diversify - -buy and hold strategy

Answer 173

1. shift income from one TIME PERIOD to another - -time value of $ 2. shift income from ONE POCKET to another - -gift - keep control of income but shift to another person - ex. of sport moving to state with lower taxes 3. change the CHARACTER of income (or rate at which income will be taxed) - -short term favorable rate

Answer 174

TRADITIONAL IRA - -time value of money benefit - -limit on contributions - -no taxes now, taxes later TRADITIONAL 401(k) - -by employer - -limit on contributions - -no taxes now but later - -employer matches contributions to same extent both traditional methods save taxes when going in but costs taxes when going out ROTH IRA - -limit on contributions - -pay taxes now, no taxes later (including interest) - -put income in and doesn't reduce taxes, but no cost coming out - saves you from increasing tax rates

Answer 175

Tax AVOIDANCE is legal Tax EVASION is illegal Goal of planning NOT to minimize taxes but to MAXIMIZE PROFITS

Answer 176

ROTH IRA | --contribute bc marginal tax rate is low

Answer 177

Raw materials inv. WIP inv. finished goods inv. WIP INV. always has 3! - -direct materials - -direct labor - -overhead Overhead - -indirect material - -indirect labor - -others: rent, electricity, depreciation

Answer 178

Raw materials inv. WIP inv. finished goods inv. WIP INV. always has 3! - -direct materials - -direct labor - -overhead Overhead - -indirect material - -indirect labor - -others: rent, electricity, depreciation

Answer 179

manufacturing overhead

Answer 180

period cost

Answer 181

it is always 3 in the ledger - DM, DL, OV | --leftover one is laborers if they give the other two

Answer 182

Cost sold was 673,000 --but OVER APPLIED overhead - took too much overhead out 673,000 - 16,000 (overhead) = 657,000 cost of goods sold!!

Answer 183

the market fair price cost plus $50 order --fair price is the cost + $50

Answer 184

use our estimated amount times the ACTUAL labor hours = how much to apply

Answer 185

use our estimated amount times the ACTUAL labor hours = how much to apply

Answer 186

income taxes is 40% (taken by multiplying balance after rev - all costs (operating income) invested 300,000 (x .01) - means 3000 profit to be worth it, otherwise would make more investing it in a bank - opportunity cost of having $ in the business) operating income = x x - .4x = 3000 .6x = 3000 x = 5000 - should be the operating income - then work up from there by adding the expenses to determine the cost --find rev. should be 24,000 --(24,000 / 40 units) = $600 should be selling price to make 3000 each month!

Answer 187

need to make 8000 or time should be spent elsewhere x - .4x = 8000 .6x = 8000 x = 13,333 (income before income taxes = operating income) 13,333 + 19,000 (expenses) = 32,333 revenue 32,333 / 40 units = $808 selling price

Answer 188

need to make 8000 or time should be spent elsewhere x - .4x = 8000 .6x = 8000 x = 13,333 (income before income taxes = operating income) 13,333 + 19,000 (expenses) = 32,333 revenue 32,333 / 40 units = $808 selling price

Answer 189

design change would increase labor costs unrelated to the amount of direct labor (engineering - indirect labor so increase labor cost) - so more allocated to product overhead cost is allocated based on direct labor hours must use 2 accounts - otherwise every plane gets the increased costs bc budgeted # and would be allocated, making the regular planes overpriced - --use manufacturing overhead - -customized overhead - driver is # design changes or # hours engineer spend

Answer 190

design change would increase labor costs unrelated to the amount of direct labor (engineering - indirect labor so increase labor cost) - so more allocated to product overhead cost is allocated based on direct labor hours must use 2 accounts - otherwise every plane gets the increased costs bc budgeted # and would be allocated, making the regular planes overpriced - --use manufacturing overhead - -customized overhead - driver is # design changes or # hours engineer spend

Answer 191

Prize for charity is new car costing 18,000 --caterer charged $40 per person for banquet and charity sold tickets for $250 each how many people had to attend banquet for charity to break-even? 250x - 40x - 18000 = 0 x = 86 tickets! do you think charity performed break-even analysis? most people don't do it!!

Answer 192

Is direct labor a fixed or variable cost? --almost always a VC (salary = FC, hourly = VC) Jobs bank changed them from a VC to a FC lost money and became expensive for GM in 2007 - when sales drop you can decrease VC but they and changed costs to FC so had to pay regardless ---always good to minimize amount of FIXED COSTS

Answer 193

1. spend less than you make | 2. keep fixed costs low

Answer 194

Financial - --cost of goods sold is the total product costs from DM, DL, and MO - -sales less cost of goods = gross profit then operating expenses then operating income - -operating expenses (depr. rent, utility, wage) are the period costs mgmt. - -sales less VC is contributed margin - -CM less fixed costs gives operating income - -VC or FC could be either product or period costs FOR BOTH after operating income is interest expense and tax expense and then net income

Answer 195

(SR - VC) contributed margin is - what contributes to cover fixed costs - then becomes profit ``` found by (CM per unit X # units) OR (SP per unit X CM ratio) ``` SHORTCUT (Fixed costs) / (CM per unit)

Answer 196

revenue per passenger = rev / # passengers VC per passenger = VC / # passengers CM per passenger = rev / (# pass - VC/# pass) CM percentage

Answer 197

(SR - VC) contributed margin is - what contributes to cover fixed costs - then becomes profit ``` found by (CM per unit X # units) OR (SP per unit X CM ratio) ``` SHORTCUT for breakeven! (Fixed costs) / (CM per unit)

Answer 198

revenue per passenger = rev / # passengers VC per passenger = VC / # passengers CM per passenger = rev / (# pass - VC/# pass) CM percentage = (CM/#) / (rev/#) FC per flight = FC/#flights to find breakeven # passengers take FC/flight / CM/pass = 119 for first flight

Answer 199

breakeven # seats / total # seats airline 1 = 119 / 163 = 73% "breakeven passenger load factor" if this # is high then it means FC are high!!! --to make money they must sell more than 73% of seats

Answer 200

What is CM ratio? (total sales rev. then i subtracted all the VC) - then divide by sales rev. 7686 / 16,233 = 47.3% average sale per customer to visit mcdonalds is $3.28 - what is contributed margin per visit? (3.28 X 47%) = $1.55 6,399 company owned stores what is FC per store per year = $705,110.10 (Add fixed costs and divide by # stores) each store is open 16 hours per day, 365 days a year - what is fixed cost per store per hour 705,110/365/16 = $120.74 FC per store per hour how many customers must visit average McDonalds PER HOUR to break-even? 120.74 / 1.55 = 78 customers (FC/hr. / CM/visit)

Answer 201

What is CM ratio? (total sales rev. then i subtracted all the VC) - then divide by sales rev. 7686 / 16,233 = 47.3% average sale per customer to visit mcdonalds is $3.28 - what is contributed margin per visit? (3.28 X 47%) = $1.55 6,399 company owned stores what is FC per store per year = $705,110.10 (Add fixed costs and divide by # stores) each store is open 16 hours per day, 365 days a year - what is fixed cost per store per hour 705,110/365/16 = $120.74 FC per store per hour how many customers must visit average McDonalds PER HOUR to break-even? 120.74 / 1.55 = 78 customers (FC/hr. / CM/visit)

Answer 202

PAST TRANSACTIONS | -bankers wants to know who put the # in and how - look at past performance and accuracy of budget compared to acctual

Answer 203

urgent not important I II not imp. III IV II - ppl put budgeting here to put it off - as important but not urgent

Answer 204

beg. cash balance budgeted cash collections cash available budgeted cash payments --exp./ dividends/ purchases total budgeted cash payments preliminary budgeted cash balance borrowing loan payment ending cash balance

Answer 205

1. avoid debt 2. budget ** 3. build a reserve (fin. and food storage) 4. pay tithing (first obligation - 10% of our best by putting it first) ** 5. teach family members (be responsible for our expenses) **

Answer 206

1. plan | 2. writing things down

Answer 207

1. tithing first 2. always budget for entertainment 3. always budget for allowance

Answer 208

1. spend less than you make 2. keep fixed costs low 3. teach your children Alma's advice - do not be slothful bc of the EASINESS of the way

Answer 209

1. spend less than you make 2. keep fixed costs low 3. teach your children Alma's advice - do not be slothful bc of the EASINESS of the way

Answer 210

philosophy/belief of company - purpose/vision -how do we improve ourselves and customers by being in business "we will be.."

Answer 211

how do you MEASURE progress in achieving goals in the mission statement "we will do.."

Answer 212

1. financial 2. customer 3. internal process - --creation and production of products - --R &D - repair cycle time 4. learning and growth

Answer 213

1. physical/nutritional 2. financial 3. spiritual 4. social 5. educational

Answer 214

1. physical/nutritional 2. financial 3. spiritual 4. social 5. educational

Answer 215

TRUE -so be careful what you measure! what do you want to become? --how do you spend your time and money right now?