Accounting 2 final

A cost center does not directly generate

revenues

Profit center managers are evaluated on their ability to generate revenues

in excess of costs

Incurs costs and directly generates revenues

Profit center

Accounting departments, purchasing departments, research departments, research departments, and the advertising departments are all

Cost centers

A sunk cost WILL NOT CHANGE

with a future course of action

The decision to accept an additional volume of business SHOULD NOT

be based on a comparison of the revenue from the additional business with the Sunk Cost of producing that revenue.

A company is considering a new project that will cost $19,000. This project would result in ADDITIONAL annual revenues of $6,000 for the next 5 years. The $19,000 cost is an example of a(n):

Incremental cost.

A cost that requires a current and/or future outlay of cash, and is usually an incremental cost, is a(n):

Out-of-pocket cost.

These decisions are risky because the outcome is uncertain, large amounts are usually involved, the investment involves a long-term commitment, and the decision could be difficult or impossible to reverse.

Capital Budgeting Decisions

Neither the payback period nor the accounting rate of return methods of evaluating investments considers the

Time value of money

In business decision-making, managers typically examine the two fundamental factors of:

Risk and Return

A company’s required rate of return, typically its cost of capital is called the:

Hurdle Rate

Much of Blank accounting is directed at gathering useful information about costs for planning and control decisions.

Managerial

A deliberate and intentional act

Fraud

What accumulates costs and then assign them to products or services.

Cost accounting systems

Variable Costs per unit

Increase with increases VOLUME

Total fixed costs remain the same regardless of

Volume

Blanks change with volume.

Total variable costs

Fixed costs per unit increase

as the volume decreases

Variable costs per unit remain the same regardless of

The volume

Multiplying the contribution margin ratio by the expected change in sales equals the expected change in

Contribution margin

Budgets are normally more effective when all levels of management are involved in the budgeting process.

True

Effective budgeting requires

Attainable goals. Evaluation processes that provide opportunities to explain any failures. Clear communication of all budgets. Adequate supporting documentation for the budget.

A shorter payback period DOES NOT REDUCE the company’s ability to respond to unanticipated changes and

increases the risk of having to keep an unprofitable investment.

If the internal rate of return (IRR) of an investment is lower than the hurdle rate, the project should be

DECLINED

the process of analyzing alternative long-term investments and deciding which assets to acquire or sell.

Capital Budgeting

The calculation of the payback period for an investment when net cash flow is even (equal) is:

Cost of investment/Annual net cash flow

The process of restating future cash flows in today’s dollars is known as:

Discounting.

The calculation of annual net cash flow from a particular investment project should include all of the following

Income taxes. Revenues generated by the investment. Cost of products generated by the investment and General and administrative expenses.

When computing payback period, the year in which a capital investment IS NOT

made in year 1

Neither the payback period nor the accounting rate of return methods of evaluating investments considers

the time value of money.

The break-even time (BET) method is a variation of the:

Payback method.

In a make or buy decision, management SHOULD NOT

focus on costs that are the same under the two alternatives.

Additional business in the form of a special order of goods or services SHOULD NOT be accepted when the

incremental revenue equals the incremental costs.

The potential benefits lost by taking a specific action when two or more alternative choices are available is known as a(n):

Opportunity cost.

A cost that requires a future outlay of cash, and is relevant for current and future decision making, is a(n):

Out-of-pocket cost

The concept of incremental cost is the same as the

concept of differential cost.

A cost that cannot be avoided or changed because it arises from a past decision, and is irrelevant to future decisions, is called a(n):

Sunk cost.

A joint cost of producing two products can be allocated between

those products on the basis of the relative physical quantities of each product produced.

Investment center managers are typically evaluated using performance measures that

combine income and assets.

A unit of a business that generates revenues and incurs costs is called a:

Profit center.

The difference between a profit center and an investment center is

an investment center is responsible for investments made in operating assets.

Profit center managers are evaluated on their ability to generate

revenues in excess of costs.

What IS NEVER distributed to the public as part of the company’s annual report and footnotes.

Departmental information

The type of department that generates revenues and incurs costs, and its manager is responsible for the investments made in operating assets is called a:

Investment center

based on expected activities and their expected levels, good for eliminating non-value adding activities

Activity Based Budgeting (ABB)

effective means of communicating management’s plans, all levels of management should be involved, positively affects
employees, improves process of performance evaluation, everyone should be involved in preparing, formal statement of future plans,

Budget

shows predicted assets liabilities & equity, uses info from previously made areas of master budget, usually
prepared last

Budgeted Balance Sheet

shows revenue and expenses, prepared after cash budget

Budgeted income statement

formal planning for
business activities, continuous process of planning, revising and evaluating business activities, does NOT give assurance of future profits,
does NOT ensure achieving goals, usually done in annual periods split into quarterly & monthly budgets

Budgeting

responsible
for preparing Master Budget, coordinate all activities of preparation

Budget Committee

prepared after operating, shows dollar
amounts from selling plant assets and from buying plant assets, not related to sales budget

Capital expenditures budget

based on info from capital
expenditures budget, includes all expected cash receipts and cash expenditures, avoid Depreciation because its non-cash, helps determine
long-term liability data with the capital expenditure budget

Cash budget

practice of new budget for x periods and constantly
revising

Continuous Budgeting

include cash budget & budgeted income & budgeted balance sheet, prepared after operating and capital
expenditure budgets

Financial budgets

General and Administrative expense budget

lists general and administrative expenses

Manufacturing budget

plan showing predicted costs for direct materials labor and overhead

do not have to follow GAAP, 3 components are
operating budget; capital expenditures budget & financial budgets, start with sales budget and ends with budgeted balance sheet,
comprehensive formal business plan

Master Budget

reports units/costs of merchandise to be purchased

Merchandise purchases Budget

include sales budget & selling expense budget & merchandise purchases budget & general and administrative budget (NOT cash)

Operating budgets

needs sales budget, preparation requires budgeting beginning inventory & budgeted ending inventory & budgeted
sales & required units of inventory available but does not need budgeted overhead, plan showing units to make based on budgeted sales
and required inventory levels

Production Budget

needs info from sales budget

Purchase budget

applicable to any type of company, set of
periodic budgets made and revised periodically and part of continuous budgeting

Rolling Budget

merchandise/inventory stored above
minimum expected demand to avoid running short

Safety Stock

prepared FIRST, plan showing expected units sold and corresponding
sales, determines the accounts receivable

Sales budget

shows selling expenses during period

Selling Expense Budget

Merchandise Purchases=

Units sold + ending inventory – beginning inventory

Cost of good sold=

beginning inventory + purchases – ending inventory

can include both price and quantity variances

Budget Performance Report

sum of variable overhead spending variance & variable
overhead efficiency variance & fixed overhead spending variance

Controllable variance

seeking ideal standards

Continuous improvement

difference between actual cost and standard cost, is sum of quantity and price variance, immaterial closed to cogs, material closed to
inventory accounts, process of examining difference between actual and budgeted costs

Cost variance

not broken down, caused
by varying skill levels of workers

Direct labor variance

– caused by varying worker skill level

Efficiency variance

can have favorable with
unfavorable variance in same report, recorded with a credit

Favorable variance

based on a single predicted amount of sales or production
volume, also called a static budget

Fixed budget

compare actual results with expected results, also called a static budget, does provide useful information to evaluate variances

Fixed budget performance report

also known as variable budget, amounts based on multiple
expected levels of sales or production, focuses on BOTH fixed and variable costs, some costs are per unit not all, useful only in a relevant
range of production, variable costs are per unit and fixed are total, based on predicted amounts of revenue and expenses linked to actual
output, prepared any time

Flexible budget

internal report to help management analyze differences between actual
and budgeted performance showing differences as variances

Flexible budget performance report

still pays attention to cost variances, focus on
most significant variances

Management by exception

difference between actual overhead applied and standard overhead applied

Overhead cost variance

internal report comparing actual costs and sales amounts with budgeted amounts showing them as favorable or
unfavorable variances, compares actual with predicted results

Performance report

direct materials price variance usually blamed on purchasing
department, when cost of materials used exceeds standard costs this variance is unfavorable, favorable materials price variances can be a
result of buying cheap stuff leading to an unfavorable quantity variance, difference between actual and standard costs resulting from
differences in standard and actual prices

Price variance

the difference between actual & standard costs when actual and standard quantity are different

Quantity variance

Helps with planning and control purposes

Sales analysis

allow managers to focus on sales mix and
sales quantities, computed with price and volume and similar to cost variances

Sales Variances

serve as basis for evaluating actual performance, not found in some magic book but unique for each company, provide basis for assessing reasonableness of actual costs,
assigns factory overhead with a predetermined rate, preset costs for products and service assuming normal operating conditions, help to
measure price and quantity variances

Standard costs

can have with favorable variance in same report, recorded with a debit

Unfavorable Variances

Volume Variance

difference between total budgeted overhead cost and overhead applied

Operating income

= sales – variable costs – fixed costs

Flexible variable costs

= (old variable costs/old predicted units) x flexible number of units

Actual cost of something =

actual hours(units) x standard + unfavorable variance (or – favorable variance)

Price variance

actual quantity x (standard price – actual price)

Quantity variance

standard price x (standard quantity – actual quantity)

Rate variance =

actual hours x (standard rate – actual rate)

Efficiency variance

standard rate x (standard hours – actual hours)

Total direct materials variance

= price variance + quantity variance

Total direct labor variance

rate variance + efficiency variance

Total controllable cost variance

(budgeted variable costs/budgeted units) x flexible units + fixed costs – actual total costs

Total variable overhead variance

Actual variable overhead – budgeted variable overhead

Volume variance

(estimated units – actual units) x fixed overhead per unit

Controllable costs

different than direct expenses, here management has power to determine or influence these, used to evaluate cost center managers, most useful way to evaluate a manager’s cost performance

Cost-based transfer pricing

preferred when company does have excess capacity

Cost center

does not generate revenue, examples are accounting/ purchasing / advertising/ research /cleaning /maintenance, incurs costs but no revenue

ratio of value added time to total cycle time

Cycle efficiency

process time

time spent producing product

wait time

time that order/job sits with no applied production

Cycle time

a NON-financial measure of manufacturing time

Departmental accounting system

provides information to management to evaluate cost control and profitability of departments

Departmental contribution to overhead

amount of revenue for a department less its direct expenses and costs

Departmental income statements

not disclosed to the public, complete in this order; identify direct expenses/allocate indirect expense/allocate service department expenses

Direct expenses

charged to individual departments causing them, not across departments, not the same as controllable, can’t be totally avoided, never allocated across departments, easily traced and assigned to a department for that department’s sole benefit, example would be employee salary of a worker in only one department

Indirect expenses

allocated based on departmental benefits, always allocated, not easily associated with a specific department and benefit multiple departments, example would be a supervisor who works in multiple departments, assigning them is difficult , can be allocated based on anything appropriate and/or reasonable

Investment center

managers responsible for investment amount and corresponding revenues and costs

Joint costs

a single costs to produce or purchase two or more different products at same time, allocated with either physical or value basis at time products are separated, are not considered direct costs, can be based on relative market values

Profit center

common examples are departments in larger stores, incur costs and generate revenue

Profit margin

measures net income resulting from sales

Responsibility accounting performance report

compares actual costs to budgeted ones, specifies expected and actual costs under a manager’s control, includes actual costs/variances/controllable costs and budgeted costs, less detailed at higher levels of management, documents both actual and budgeted costs

Responsibility accounting
system

provides information for management to evaluate a department manager’s performance, controllable costs assigned to managers who are responsible for them, can be applied at any level of an organization.

Return on total assets

good for evaluating investment centers, does not work for cost centers

Return on investment

investment center net income/average invested assets, also profit margin x investment turnover

Transfer price

price for transferring items from one division to another, does NOT directly impact company profits, use market-based when no excess capacity

Uncontrollable costs

would not continue if a department were eliminated, costs that manager does not determine or strongly influence advertising expenses allocated based on departmental sales, sometimes expenses are arbitrary, allocations need to be fair

Allocation of costs problems

department amount/total of all departments x cost being allocated

Return on investment

profit margin x investment turnover

Profit margin

investment center net income/investment center sales

Investment turnover

investment center sales/investment center average assets

Cycle time

process + inspection + move + wait

Cycle efficiency

process time/cycle time …or….value added time/cycle time

Residual income

investment center income – target investor center income

Target investor center
income

Hurdle rate x average investment center assets

Avoidable expense

an expense that can be avoided if changing alternatives

Incremental cost

same as differential cost, but sometimes different than out of pocket costs, example of incremental overhead costs would be extra cleaning supplies, set up fees, power to produce more. Additional cost incurred only if an action is taken, example is cost of a new machine

Make or buy

focus on costs that are different among alternatives, choose to make when relevant cost of making is less than buying, consider incremental costs

Markup percentage

desired profit divided by total costs

markup per unit

total cost per unit x markup percentage per unit

Opportunity cost

benefit lost by taking one action when others are available, example job wages given up to take a summer trip, example is contribution margin from lost sales to produce a new product

Out of pocket cost

requires current/future cash outlay, paid by an internal party

Production costs

direct materials, direct labor & manufacturing overhead

Constrained resource
problems

produce product with highest contribution margin per hour (or unit of scarce resource)

Relevant Benefits

additional revenue by selecting one option over another

Sales mix

combination of products sold by a company

Sunk cost

historical and do not affect future courses of action or decision no matter how significant, not avoidable, can’t be avoided, arises from past decisions and is irrelevant, depreciation is one because it happened from a past decision and can’t be avoided so ignore it

Special order

accept when incremental revenue is greater than incremental cost and have the capacity to do so

Total cost method

selling price equals product’s total costs plus desired profit, include total production & nonproduction costs plus markup

Unavoidable expense

amounts that will continue after eliminated a segment

Relevant Cost

variable costs, (Direct materials + Direct labor +variable overhead)

Process further and scrap/rework

(New selling price – old price) – additional costs….or incremental revenue – incremental costs. If incremental revenue greater than incremental cost then "process further" or "rework and sell"

Selling price per unit

total cost per unit + markup per unit

Accounting Rate of Return

does not include time value of money

average investment

(beginning book value + ending book value)/2, uses net income (not cash flows) equals after-tax net income/annual average investment

Break-even time

accept if shorter than cutoff time, does have advantage of including time value of money, lower is better because getting money sooner, variation of the payback period

Capital budgeting and investment evaluation

process of analyzing long term investments only to decide whether to buy or sell assets, multiple methods can be used, risky because of uncertain outcomes/long time/lots of money/can’t undo decision, are affected by required returns on investments, technology investments are often more risky, most but not all use time value of money, based on uncertain predictions of future outcomes, objective is to get good returns on investments, decision is based on two main criteria: risk & return

Cost of capital

Accept

Discounting

restating future cash flows as their present values,

Hurdle rate

minimum acceptable rate of return for a project/investment, if project financed with borrowed funds the hurdle rate must be higher than the interest rate paid, higher risk investments require higher hurdle rates/returns

Internal rate of return

accept project if it is greater than the hurdle rate, does include time value of money, rate that yields a net present value of zero, works with uneven cashflows, uses cash flows as measurement, doesn’t measure variances in risk over project life, avoids net present value problem of differing investment amounts because the rate is expressed as a common sized percentage and not a dollar amount,

Net present value

accept if greater than zero, does include time value of money, considers all estimated cash flows of a project, projects with higher cash flows in earlier years have higher Net Present Value. When assets discounted at required rate and give positive value acquire that asset. Find the present value with a "discount rate", use cash flows as measurement, ignores past cash flows

Net Cash flow

calculated as net income plus depreciation, when calculating from top down we can say it does not include depreciation because we wouldn’t subtract that expense out since it’s not cash

Payback period

does not include time value of money, simplest and lets you know when you recover initial investment, fails to consider (ignores) cash inflows beyond payback time, same payback period does not mean same investment value, ignores cash flows after recover of cost, uses cash flows as measurement.

When cash flow is even

Cost of investment/annual cash flow, also time expected to pass before net cash flows cover initial cost

Profitability index

accept if greater than or equal to 1

Time value of money

a dollar is worth more today than in the future

Payback period

cost of investment/annual net cash flow

Annual average investment

(beginning book value + salvage value)/2

Accounting rate of return

annual after-tax net income/annual average investment

Profitability

net present value of cash inflows/initial investment

Factory Overhead =

Indirect Materials + Indirect Labor + Factory Depreciation

Flexibility of practice when applied to managerial accounting means that

The design of a company’s managerial accounting system largely depends on the nature of the business and the arrangement of internal operations

What appears after sales on an income statement?

Cost of Goods sold

These are all included in Direct Materials Cost

Invoice cost of Direct Materials, Materials storage costs, materials handling costs, and insurance on stored material.

Beginning finished goods inventory + cost of goods manufactured – ending finished goods inventory =

Costs of goods sold

Direct Materials + Direct Labor + Factory Overhead + Beginning work in process

= Cost of goods manufactured

In a job order cost accounting system, which account would be debited when raw materials are purchased for use in production?

Raw materials inventory

In a job order cost accounting system, which account would be debited when raw materials is transferred into production

Goods in process inventory

A company that uses a job order costing system would make the following entry to record the flow of direct matierials into production

Debit work in process inventory, credit raw materials inventory

A company has an overhead application rate of 121% of direct labor costs. How much overhead would be allocated to a job if it required total labor costing $14,000?

14,000 x 1.21 = $16,940

Job 30C was ordered by a customer on September 25. During the month of September, Jaycee Corp requisitioned $2,000 of direct materials and used $3,500 of direct labor. The company applies overhead at the end of each month at a rate of 200% of the direct labor cost incurred. What is the balance in the work in process account at the end of september relative to Job 30C?

DM + DL + FOH 2,000 + 3,500 + (3500 x 2) = $12,500!

Anus company uses a job order costing system and allocates its overhead on the basis of direct labor costs. Companys costs are direct labor of 32,000 and factory overhead applied at 6,200. What is the overhead application rate?

6,200/32,000

Beginning balance + DM + DL + OH – Ending Balance =

finished goods

What are the main advantages of traditional volume based allocation methods compared to activity based costing

Traditional volume based methods are easier to use and less costly to implement and maintain

Overhead costs are more difficult to trace to products because

They cannot be physically traced to units of product in the same way that direct materials and direct labor can, they are not directly related to production, and many overhead costs apply to factory wide activities or costs

The general calculation in determining the rate (base on the plant-wide overhead method) for a company who uses direct labor as its allocation basis would be described as

Total budgeted overhead cost / total budgeted direct labor hours

What are 3 advantages of activity based costing over traditional volume based allocation methods?

There is more accurate product costing, more effective cost control, and better focus on the relevant factors for decision making

Owl company estimates that overhead costs for the next year will be $5,995,000 for indirect labor and $1,100,000 for factory utilities. The company uses MACHINE HOURS as its overhead allocation base. If 165,000 machine hours are planned for the next year, what is the company’s plantwide overhead rate?

5,995,000 + 1,100,000 / 165,000 = $43 per machine hour

Nicholas Smith Company uses a plantwide overhead rate with MACHINE HOURS as the allocation base. Next year, 140,000 units are expected to be produced taking .80 machine hours each. How much overhead will be assigned to each unit produced given the following?
Overhead costs: D1: 6,037,000. D2: 2,760,500
Machine Hours: D1: 380,000. D2: 310,000

Overhead: 6,037,000 + 2,760,500 = 8,797,500 Machine Hours: 380,000 + 310,000 = 690,000 8,797,500 / 690,000 = 12.75 12.75 x .8 = $10.20 per unit

Alannah Industries produces bread which goes through two operations, mixing and baking, before it is ready to be packaged. Next year’s expected costs and activities are: Direct Labor Hours BAKING: 180,000. Overhead costs BAKING: 936,000.
Compute overhead rate for baking department based on direct labor hours.

936,000 / 180,000 = $5.2 per DLH

Variable cost per unit remains

constant

Contribution margin income statement

Sales revenue – Variable Costs = Contribution Margin – Fixed Costs = Net Income

The break even point may be defined as

The point at which revenues are equal to variable costs

What includes both fixed and variable components

Mixed Costs

These cause problems in cost-volume-profit calculations and so they must be split out between the fixed and variable components

Mixed Costs

One way to split out mixed costs into variable and fixed components is by using the

high low method

The excess of expected sales over the sales level at the break even point is known as

Margin of safety

During its most recent fiscal year, dover inc had total sales of $3,280,000. Contribution margin amounted to $1,540,000. What amount should have been reported as variable costs in the company’s contribution margin income statement for the year?

3,280,000

Company A’s fixed costs were $135,000, its variable costs were $72,000 and its sales were $288,000. What is the break even point in SALES DOLLARS?

Sales – Variable Costs / Sales 288000 – 72000 / 288,000 = .75 FC 135,000 / .75 = $180,000

Company A’s fixed costs were $35,380, it’s variable costs were $86,020. And its sales were $127,500 for 34,000 units. What is the company’s break even point IN UNITS?

$35,380 / (127,500 – 86,020) = .8529 x 34,000 = 29,000 units

A company manufactures and sells a product for $262 per unit. The company’s fixed costs are $68,800 and its variable costs are $230 per unit. What is the break even point

Fixed Costs / Unit price – Variable Costs 68,800 / 262 – 230 = 2,150 units

Glad stone Co. has expected sales of $364,000 for the upcoming month and its monthly break even sales are $347,500. What is the margin of safety as a percent of sales? round to two decimals

(364,000 – 346,500) / 364,000 = 4.53%

A firm expects to sell 25,100 units of its product at $10.10 per unit and to incur variable costs per unit of $6.10. Total fixed costs are $71,000. The pretax net income is

Sales 25,100 x 10.1 = 253,510 – Variable costs 153,110 = CM 100,400 – Fixed Costs 71,000 = Pre tax net 29,400

Fixed costs of $50,000 are expected to increase 20%. The sales price is $18 per unit. The contribution margin of $6 per unit is expected to decrease 25%. With the projected operating income of $300,000. What must be projected sales?

50,000 (1.2) = 60,000 FC 6 (.75) = 4.5 4.5 / 18 = .25 60,000 + 300,000 / .25 = 1,440,000

Use High Low Method
Total Units Total Cost
Jan 10,000 14,000
Feb 13,400 15,360
March 12,000 14,500

Total cost of highest – total cost of lowest —————————————————– Total units of highest – total units of lowest 15360 – 14,000 ——————— 13400 – 10,000 =.4 Plug in either or (.4 x 13,400) + x = 15,360 Solve $10,000

Variable Costing

Only costs that change in total with production level, DM, DL, Voh. Fixed OH is treated as a period cost which means it is expensed in the current period.

Absorption Costing (traditional method)

Assumes products absorb all cost incurred. DM, DL, VOH, FOH. Product cost included in inventory until sold. Required for GAAP.

When units produced = units sold

there is no ending inventory and net income is the same for both Variable costing and absorption costing

When Units produced is GREATER than Units sold, there is a balance in ending inventory,

Net income is higher under Absorption Costing. In Variable costing the entire amount is expensed as a period cost. In AC a portion of FOH is carried as cost of ENDING INVENTORY VC has higher total cost

When Units produced is LESS than units sold, they sold everything produced during period and some or all of the beginning inventory.

Net income is higher under variable costing. The amount was already expensed as a period cost in the prior period. Absorption costing has the higher total cost

What is the total product cost per unit under absorption costing?

You add up DL, DM, VOH, and FOH

What is net income using variable costing?

Sales dollars – DM – DL -VOH (Make sure to divide this number by units produced, then multiply that number by units SOLD) -All the other costs

What is the total VOH if the company’s cost per unit of finished goods using variable costing is $5,475?
Dm: 750
DL: 1000

750 + 1000 + VOH = 5,475 Solve

Pact company had net income of $880,000 based on variable costing. Beginning and ending inventories were 6,000 units and 3,200 units. Assume the fixed overhead per unit was $3.61 for both the beginning and ending inventory. What is net income under absorption costing?

Absorption costing NI + Beginning Inventory – Ending Inventory = Variable costing NI So we do it backwards. X +(6,000 x 3.61) = 21660 -(3200 x 3.61) = 11552 = 880,000 Solve for x by isolating x 880,000 – 21660 + 11552 = 869,892

Variable costing income can be adjusted to absorption costing income by

Adding the fixed cost allocated to ending inventory and subtracting the fixed cost previously allocated to beginning inventory

Flow of budget data is what kind of process

Bottom Up

Master Budget Sequence

Prepare sales budget production budget Manufacturing Budgets Selling and Administrative Capital Expenditures Financial (Cash, income, balance sheet).

Purchases =

Desired inventory + Budgeted COGS – Beginning Inventory

Beginning Cash Balance + Budgeted Cash Receipts – Budgeted Cash Disbursements =

Preliminary Cash balance – Repay loans or increase new loans

Given the sales budget, how much cash is expected to be collected in January?
Expected Cash collection is 60% in the month of sale, 25% the following month and 10% the second following month.
Oct: 40,000
Nov: 50,000
Dec: 60,000
Jan: 35,000

35,000 x .6= 21,000 60,000 x .25= 15,000 50,000 x .1= 5,000 add them all up and $41,000

Sales budgets are prepared before the

Cash budgets

Budgeted balance sheets are dependent upon

Budgeted income statements

Budgeted income statements include

depreciation expenses

Merchandise budgets show

budgeted units and dollar amounts

A hardware store has budgeted sales of 46,000 for its power tools in august. managements wants to have $8,000 in power tool inventory at the end of august. It’s beginning inventory is to be $5,000

Purchases = sales + ending inventory – beginning inventory 46,000 + 8,000 – 5,000 = 49,000

A plan that shows the predicted costs for direct materials, direct labor and overhead to be incurred in the MANUFACTURING the units in production budget is called

Manufacturing budget

The quantity of material required if the process if 100% efficient without any loss or waste

Ideal Standards

The quantity of material required under normal application of the process which considers that some loss of material usually occurs with any process

Practical standard

FIXED COST PER UNIT DECLINE WITH

increases in volume, spread that peanut butter bitch

Budgeted materials are 24,000 units at $5 per unit for 6,000 units of finished product. Actual materials usage was 24,900 units at $4.80 for the 6,000 units of finished product. What was the total direct materials variance

…

Labor rate variance

(Actual rate – standard rate) x Actual hours

A company’s flexible budget for 13,200 units of production showed sales, $54,120, variable costs $21,120 and fixed costs $18,000. The operating income expected if the company produces and sells 19,600 units is

54,120 sales / 13,200 units = $4.10 per unit Sales = 4.10 x 19,600 sold = 80,360 sold VC 21120 / Units 13,200 = $1.60 x 19,600= 31,360 VC 80,360 -31,360 -18,000 =31,000

Never included in direct materials costs

outgoing delivery charges

Cost accounting systems based on

perpetual inventory systems

Break even point is when

operating income is equal to zero

Cost per unit is greater under

absorption costing

Profit margin DOES NOT measure

Investment center sales

The decision to accept an additional volume of business should ****ING NOT

be based on a comparison of the revenue from the additional business with the sunk costs of producing that revenue

Multiplying the contribution margin ratio by the expected change in sales equals the expected change in contribution margin.

true

Sindler Corporation sold 3,000 units of its product at a price of $13 per unit. Total variable cost per unit is $7.50, consisting of $6.80 in variable production cost and $.70 in variable selling and administrative cost. Compute contribution margin for the company.

$13.00 – $7.50 = $5.50 x 3,000 units = $16,500

Flexibility of practice means

Managers must be flexible with information provided in varying forms and using inconsistent measures.

Activity based costing

More accurate product costing, more effective cost control, and better focus on the relevant factors for decision making.

Merchandise budgets show budgeted

units and dollar amounts

Budgeted income statements include

depreciation expenses

cash budgets DO NOT INCLUDE

depreciation expenses