# Accounting 2 final

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### Calculate the Price

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 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

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