1

2

Abiqua Acres

DM CC WIP-$$100% 40% BI 5,000 DM $20,000

CC $16,000 57,000*$11.7932IN 60,000 57,000 out = $672,212.4

100% 50% EI 8,000 DM $250,000CC $450,000DM $33,230.40 8,000*100%*$4.1538

CC $30,557.20 8,000*50%*$7.6393

$63,787.60

BI + IN = EI + Out (?)$36,000 + $700,000 = $672,212.40 + $67,787.60

$736,000 = $736,000

DM CCOut 57,000 57,000EI 8,000*100% 8,000EU 8,000*50% 4,000

65,000 61,000

BI $20,000 $16,000IN $250,000 $450,000

Total $270,000 $466,000

Uni

ts t

o be

ac

coun

ted

for: WIP-Units

BI

INout

Wtd. Avg. E.U.

$ to Acct. for

$270,000/65,000 $466,000/61,000

=$4.1538 =$7.6393

$11.7932 per E.U.

$/E.U.

3

Abtex Electronics

SP VC CM Mix

Wtd. Avg.

CM

TapeRecorders

$15.00 $8.00 $7.00 1/3 $2.33

Electronic

Calculators$22.50 $9.50 $13.00 2/3 $8.67

$11.00

BE(units) =FC

CM per unit=

$280,000+ $1,040,000

$11.00= 120,000 units

40,000TapeRecorders

80,000ElectronicCalculators

4

Abtex Electronics (cont.)

Tape Recorders Electronic Calculators

DM $4.00 × 90% =DL $2.00 × 110% =VOH Total VC per unit

DM $4.50 × 80% =DL $3.00 × 110% =VOH Total VC per unit

$3.60 2.20 2.00$7.80

$3.60 3.30 2.00$8.90

Total Fixed Costs:$ 280,000 1,040,000 57,000$1,377,000

Sales Mix Calculation:

$750,000

I made up a big number for “revenue”,likely to be divisible by both $15.00 and $20.00,the 1998 selling prices

20% 80% Estimated 1998 mix of revenue

$600,000 Rev.SP $20 per unit

30,000 calculators

$150,000 Rev.SP $15 per unit

10,000 recorders

¼ ¾SALES MIX IN UNITS

5

Abtex Electronics (cont.)(Continued)

SP VC CM Mix

Wtd. Avg.

CM

TapeRecorders

$15.00 $7.80 $7.20 1/4 $1.800

Electronic

Calculators$20.00 $8.90 $11.10 3/4 $8.325

$10.125

BE(units) =FC

CM per unit=

$1,377,000

$10.125

= 136,000 units

27,200TapeRecorders

108,800ElectronicCalculators

¼ ¾

6

Adams Co.Has 80,000 of RM availableNo more can be purchased Bicycle Frames $40/unit CM, requires 8 lbs. of RMSet of Golf Clubs $32/unit CM, requires 4 lbs. of RM ** Everything they make can be sold!! Bike Frames $40 / 8 lbs. = $5.00 per lb. CMGolf Clubs $32 / 4 lbs. = $8.00 per lb. CM 80,000 lbs. of RM available ÷ 4 lbs. per unit of B= 20,000 units of B produced to maximize CM  ** What if they can only sell 8,000 units of product B?? Make 8,000 units of product B 32,000 lbs.Make 6,000 units of product A 48,000 lbs.(= 48,000 lbs. / 8 lbs. per unit)

80,000 lbs.

7

1.

Al $20 $16 $4 2/10 $.80 $ 4.00

Cat $50 $36 $14 3/10 $4.20 $15.00

Raz $40 $28 $12 5/10 $6.00 $20.00

$11.00 $39.00

BE (units) = FC = $77,000 = 7000 units

CM per unit $11

AP CAT RAZ

20% 30% 50%

1400 + 2100 + 3500 = $7000

$28,000 + $105,000 + $140,000 = $273,000

“Al” “Cat” “Raz”

Alcatraz ArtifactsSP VC CM Mix

Wtd.Avg.CM

Wtd.Avg.SP

8

2. WTD.AVG.

SP VC CM MIX CMAl $20 $16 $4 .40 $1.60Cat $50 $36 $14 .40 $5.60Raz $40 $28 $12 .20 $2.40

$9.60BE (units) = FC = $77,000 = 8021 units

CM per units $9.60

Al Cat Raz

40% + 40% + 20%

3,209 + 3208 + 1,604

$64,180 + $160,400 + $64,160 = $288,740

Increased BE point because more low profit “Al’s” were sold.

Alcatraz Artifacts (cont.)

9

Andretti Company1.

Variable Expenses Fixed Expenses Variable Expenses

DM $10.00 OH $300,000DL 4.50 S&A 210,000VOH 2.30 Total $510,000

VS&A 1.20Total $18.00

TODAY

Sales $1,920,000 [$32*60,000]

Vbl (1,080,000) [$18*60,000]CM $840,000Fixd (510,000)

NI $330,000

TOMORROW

Sales $2,400,000 [$32*75,000]Vbl (1,350,000) [$18*75,000]

CM $1,050,000Fixd (590,000) [$510,000+$80,000]NI $460,000

Yes, the increase in fixed selling$130,000 expense would be justified.

10

Andretti Company (cont.)2.

Variable Expenses

DM $10.00DL 4.50 A foreign company wants toVOH 2.30 purchase 20,000 Daks.

Duties 1.70Selling 3.20

Total $21.70

Breakeven: TR = TC

20,000 x = 20,000 ($21.70) + $9,000where x is unit selling price

20,000 x = $434,000 + $9,000

20,000 x = $443,000

x = $22.15 selling price / unit

11

Andretti Company (cont.)

3.

The relevant cost figure is $1.20 per unit, which is the variableselling expense per Dak. Since the irregular units have alreadybeen produced, all production costs (including the variableproduction costs) are sunk. The fixed selling expenses are notrelevent since they will not change regardless of whether or not

the irregular units are sold.

12

Andretti Company (cont.)4.

If the plant operates at 30% of normal levels, then only 3,000units will be produced and sold during the two-month period:

60,000 units per year * 2/12 = 10,000 units sold10,000 units * 30% = 3,000 units produced and sold.

Continue Producing

Sales $96,000 [$32*3,000]Vbl (54,000) [$18*3,000]

CM $42,000Fixd (85,000) [$510,000*2/12]NI ($43,000)

Shut Down

FOH ($30,000) [$300,000*2/12*.60]FS&A (28,000) [$210,000*2/12*.80]

Total ($58,000)

Net disadvantage of closing plant:

($15,000)

13

Andretti Company (cont.)5.

The relevant costs are those that can be avoided bypurchasing from the outside manufacturer. These costs are:

DM $10.00

DL 4.50VOH 2.30

FOH 3.75 [($300,000*.75)/60,000]

VS&A 0.40 [$1.20*1/3]FS&A 0.00Total $20.95

To be acceptable, the ouside manufacturer's quotation must be

less than $20.95 per unit.

14

UNITS UNITS UNITS UNITS

FG - Mar FG - April FG - May FG - June

6000

6000

32,000

8,000(20% x 40,000)

Produce30,000

BI 8000Produce 44,000 40,000

EI 12,000(20% x 60,000)

60,000

RM UNITS

RM - April

RM UNITS

RM - May

RM UNITS

FG - June

44,000 x 3

= 132,000

33,000 lbs.(25% x 132,000)

24,000 lbs.Purchase 105,000 lbs.

32,000 x 3= 96,000 lbs,

Archer Companya.

b.

15

ACTIVITY:“N” Number of production runs : $400,000 / 50 = $8000 per…“Q” Quality tests performed : $360,000 / 300 = $1200 per…“S” Shipping orders processed : $120,000 / 150 = $800 per…

Audio Basics Corporation

1. ----- ABC Standard High Grade

“N”“Q”“S”

40 × $8,000 =180 × $1,200 =100 × $ 800 =

$ 320,000$ 216,000$ 80,000

$ 616,000$ 250,000$ 348,000$1,214,000

MOHDMDLTotal MFG

÷ 320,000 units

$3.79375 per unit

“N”“Q”“S”

10 × $8,000 =120 × $1,200 = 50 × $ 800 =

$ 80,000$ 144,000$ 40,000

$ 264,000$ 228,000$ 132,000$ 624,000

MOHDMDLTotal MFG

÷ 100,000 units

$6.24 per unit

a.

b.

2. ----- Allocated MOHEst. MOH Activity

$880,000$480,000

= $1,833333 per DL$

$ 638,000 (= $348,000 × $1.833333)$ 250,000$ 348,000$1,214,000

MOHDMDLTotal MFG

÷ 320,000 units

$3.8625 per unit

$ 242,000 (= $132,000 × $1.833333)$ 228,000$ 132,000$ 602,000

MOHDMDLTotal MFG

÷ 100,000 units

$6.02 per unit

Standard High Grade

$ 616,000+ 264,000$ 880,000

16

B.G. Wip CompanyStep 1

DM CC

100% 60%

100% 1/3

WIP

2,000

9,000

3,300

7,700

Step 2

Wtd. Avg. Equivalent Units

OUT

EI 3300*100%

3300*1/3

E.U.

DM CC

7,700 7,700

3,300

1,100

11,000 8,800

17

1.

2.

DMPrice Qty

AQ × AC14,000 × $1.80 $25,200

AQ × SC14,000 × $1.75 $24,500

SQ × SC × $1.75

$700 U

AQ × SC13,250 × $1.75 $23,187.50

SQ × SC12,600 × $1.75 $22,050

(6300)(2)

$1137.50 U

DL

AQ × AC4,100 × $9.05 $37,105

AQ × SC4,100 × $9.00 $36,900

SQ × SC(2000)(2) × $9.00 $36,000

$205 U

Rate Efficiency

$900 U

Ballycanally Corporation

18

AQ × AC

27,750 × $1.22 $33,855

AQ × SC

27,750 × $1.20 $33,300

$555 U

Spending Efficiency

$300 F

SQ × SC (Applied)28,000 × $1.20 $33,600

VOH3.

$255 U

4. FOH

Actual

$155,500

Budget

$144,000

$11,500 U

Spending Volume

$6,000 F

$5,500 U

Applied (SQ × SC)60,000 × $2.50

$150,000

Ballycanally Corp. (p. 2)

19

Barber Company

Rate

AQ * AP AQ * SP SQ * SP34,500 * ? 34,500 * ? 35,000 * ?

$241,500 $220,800

$3,200 / 500 hours = $6.40

Eff

$3,200 F

? = $6.40

$20,700 u

20

Price Usage

AQ × AC

2500 × $2.60

$65,000

AQ × SC

25,000 × $2.50

$62,500

SQ × SC

$2,500 U

1AQ × SC

23,100 × $2.50

$57,750

SQ × SC

23,400 × $2.50

$58,500

(7800 units)(3lbs)

$750 F 2

DM

DL

Rate Efficiency

AQ × AC

40,100 × $7.30

$292,730

AQ × AC

40,100 × $7.50

$300,750

SQ x SC

39,000 × $7.50

$292,500

$8020 F $8250 U

$230 U

3 4

(7800 units)(5 hrs)

Beale Street Blues, Inc.

21

FOH

Spending Volume

Actual

AQ × AC

$170,000

Budgeted

BQ × SC

40,000 × $4.00

$160,000

$10,000 U $4,000 U

Applied

SQ x SC

(7800)(5)

39,000 × $4.00

$156,000

6

VOH

Spending Efficiency

Actual

AQ × AC

$130,000

AQ × SC

40,000 × $3.00

$120,300

$9,700 U $3,300U

5

SQ × SC

(7800)(5)

39,000 × $3.00

$117,000

Beale Street (p. 2)

22

BURT MANUFACTURING Unit Product Cost Data Years 1 through 4 Year

1 2 3 4Variable manufacturing costs:

Direct materials………………………….. $ 6 $ 6 $ 7 $ 8

Direct labor……………………………… 3 4 4 5

Variable MOH…………………………… 2 2 3 4

Product cost using variable costing………… $11 $12 $14 $17

Add prorated fixed MOH cost……………… 5 6 7 8

Product cost using absorption costing……… $16 $18 $21 $25

BURT MANUFACTURINGAbsorption Costing Income Statement

For Years 1 through 4

Sales………………………………… $200,000 $243,000 $390,000 $350,000

Cost of goods sold………………….. 128,000 158,000 258,000 242,000

Underapplied (overapplied) overhead 0 (12,000) 0 16,000

Gross margin………………………. 72,000 97,000 132,000 92,000

Variable selling and administrative... 24,000 27,000 52,000 50,000

Fixed selling and administrative…… 30,000 35,000 40,000 50,000

Total operating expenses…………… 54,000 62,000 92,000 100,000

Net income………………………… $18,000 $35,000 $40,000 $ (8,000)

Year

1 2 3 4

Belly Rub Productions

23

AQ × AC

$25,150

AQ × SC3,010 × $8 $24,080

$1,070 U

Spend Eff.

$1,760 U

N/A

N/A

SQ × SC(310) (9) × $8 $22,320

SQ × SCVOH

Actual

$23,800

Budget

$24,300

$500 F

Spend N/A

N/A

Vol.

$810 F

Budget BQ × SC2,700 × $9 $24,300

Applied SQ × SC(310) (9) × $9.00 $25,110

FOH

$48,950

$570 U

Spend Eff.

$1760 U

Vol.

$810 F

$1520 U

$20,769 / $6.90 = 3010 DLH

310 units actual x 9 hrs. = 2790 hrs.

$63 / 9 hrs. = $7 / hr. = DL cost per hr.

$45,900

$8 + $9= 2,700 budgeted DL hrs.

TOTAL

Benton Company

$47,430

24

Bob’s Beef Boy0

Meat $54,000

Lettuce $6,750

Tomatoes $7,500

Kaiser rolls $9,250

0

$77,500

DM

$66,400 $66,400

DL

Condiments $2,650

Paper $2,400

Utilities $22,500

Grill Depr. $7,000

Rent $25,000

Cleaning $6,800

$66,260 $66,260

MOH

0

$77,500

66,400

66,260

0

$210,160

WIP

0

$210,160

0

$210,160

FG

$210,160

0

$210,160

COGS

COGM

$210,160

Servers $53,000

Mgr. $41,000

Depr. Signs $3,250

Adv. $3,500

$310,910

$478,800

$167,890

I/S

25

Absorption Costing

Income Statement

For the Year Ended Dec. 31, 2002

Rev. $630,000

COGS: Prime (252,000)

V.MOH (84,000)

F.MOH (100,000)

GM $194,000

S&A: V.Sell (54,000)

F.Sell (45,000)

F.Adm (90,000)

NI $5,000

Variable Costing

Income Statement

For the Year Ended Dec. 31, 2002

Rev. $630,000

VC: Prime (252,000)

V.MOH (84,000)

V.Sell (54,000)

CM $240,000

FC: F.MOH (100,000)

F.Sell (45,000)

F.Adm (90,000)

NI $5,000

Bojangle Dance Shoes

26

Bosna Corporation

Spend N/A

AQ * AP AQ * SP SQ * SP SQ * SP$2,450,000 * .5% $2,000,000 * .5%

$12,500 $12,250 $10,000

$2,250 u

$2,500 u

If you are asked for a "variance" this is it

Eff

$250 u

27

Buffalo BroilersPDOR = Est. MOH / Est. Activity

$500,000 / 100,000 DLH = $5.00 per DLH

$500,000 / $800,000 = $0.625 per DL$

$500,000 / 80,000 MH = $6.25 per MH

1.

28

Buffalo Broilers (cont.)MOH (DLH)

Actual Applied

$5.00 * 120,000

$576,000 = $600,000

$24,000 overapplied

MOH (DL$)

Actual Applied

.625 * $930,000

$576,000 = $581,250

$5250 overapplied

MOH (MH)

Actual Applied

$6.25 * 90,000

$576,000 = $562,500

$13,500

underapplied

2.

$576,000 / 120,000 DLH =

$4.80 Actual MOH per Actual DLH

3.

29

California Textbooks (A)

RELEVANT ITEMS Make Buy Make BuyOutside purchase of parts $160,000 $16Direct materials $10,000 $1Direct labor $80,000 $8Variable overhead $40,000 $4Fixed overhead that can be avoided not making $20,000 $2 Total relevant costs $150,000 $160,000 $15 $16Difference in favor of making $10,000 $1

TOTAL COSTS PER-UNIT COSTS

Relevant Benefitso better to MAKE than BUY

30

California Textbooks (B)

Best choice is to buy textbook coversand use facilities for other products

Buy Buy and useand leave facilities Buyfacilities for other and

Make idle products rentRent revenue $ --- $ --- $ --- $5,000Contribution margin from other products ---- ---- 19,000 ----Buying parts (150,000) (160,000) (160,000) (160,000)Net relevant costs ($150,000) ($160,000) ($141,000) ($155,000)

31

Candlelight Candles Co.

I have chosen to round to

2 decimal places

WIP Units

25,000

510,000

12,000

523,000Out

BI

IN

EI

DM

100%

80%

CC

40%

80%

WIP - $ (Wtd. Avg.)

DM $42,650

CC $17,152

DM $433,500

CC $339,690

DM $10,680

CC $ 6,432

$17,112

523,000 * $1.56

= $815,880

= 12000 * 100% * $0.89

= 12000 * 80% * $0.67

OutBI

IN

EI

E.U.

DM CC

523,000

12,000

535,000

523,000

9,600

532,600

OUT

EI: (DM) 12000 * 100%

EI: (CC) 12000 * 80%

E.U.

Costs to Account For

DM CC

$42,650

$433,500

$476,150

$17,152

$339,690

$356,842

BI

IN

Total

$/EU

DMCC

$476,150 / 535,000 = $0.89

$356,842 / 532,600 = $0.67

$1.56

32

1. DM $210,000

DL 140,000

VOH 30,000

$380,000

2. Sales $500,000

Loss: COGS:

DM $210,000

DL 140,000

VOH 30,000 2.

FOH $50,000 ($430,000)

4. $70,000

GM

FS & A (60,000)

$10,000

3. Sales $500,000

Less: VC:

DM $210,000

DL 140,000

VOH 30,000

VS & A $20,000 (400,000)

CM $100,000

5. BE ($) = FC BF ($) = $110,000 = $110,000

CM Ratio $100,000/$500,000 1/5

6.Operating Leverage = CM/NI = $70,000/10,000 = 7

= $550,000

Cass Company

33

Cattle Company (1997)

DM

$96,000

$202,000 $190,000

$108,000

DL

$130,000 $130,000

MOH

$15,000

104,000

$119,000 $119,000

- 0 -

Purch

Inventory Accounts

Product Costs

WIP

$71,000 190,000 130,000 $445,000 119,000

$65,000

FG

$45,000

$445,000 $408,000

$82,000

COGS

$408,000 $408,000

0

I/S

$408,000 $566,000

$135,000

$23,000

COGS

ACOGS

COGM

NI

Rev.

Admin.

BI + In = EI + Out

PeriodCosts

34

Cattle Company 1998WIP

$65,000

235,000

170,000 $562,000

176,000

$84,000

FG

$82,000

$562,000 $575,000

$69,000

COGS

$575,000 $575,000

I/S

$575,000 $812,000

$161,000

$76,000NI

Rev.

ACOGS

COGSCOGM

DM

$108,000

$229,000 $235,000

$102,000

DL

$170,000 $170,000

0

MOH

$18,000

158,000

$176,000 $176,000

0

Purch

Inventory Accounts

Product Costs

BI + In = EI + Out

Admin.PeriodCosts

35

1. Y= a + bx b = hi-low $

hi-low Activity

b = $80,630 - $45,380

986 – 486

b = $70.50 per testing hour

$80,630 = a + $70.50 (986)

$80,630 = a + $69,513

a = $11,117

Cost Formula

y = $11,170 + $70.50x

2.y = $11.17 + $70.50 (800)

y= $11.17 + $56,400

y= $67,517

Chain Saw Company

36

Chain Saw Company (cont.)CHAIN SAW COMPANYRegression Analysis

SUMMARY OUTPUTY = Costs X = Hours

J $54,235 640 Regression StatisticsF $59,520 722 Multiple R 0.915652697M $45,380 486 R Square 0.838419862A $64,000 886 Adjusted R Square 0.822261848M $59,235 634 Standard Error 4677.027055J $73,060 812 Observations 12J $81,625 927A $80,630 986 ANOVAS $75,105 958 df SS MS F Significance FO $63,970 819 Regression 1 1135045702 1135045702 51.88879487 2.91444E-05N $67,350 856 Residual 10 218745820.7 21874582.07D $55,285 546 Total 11 1353791523

Coefficients Standard Error t Stat P-value Lower 95% Upper 95%Intercept 17431.74361 6733.347046 2.588867542 0.027002373 2428.90886 32434.57837X = Hours 61.49849834 8.537441076 7.203387736 2.91444E-05 42.47589089 80.52110579

y = $61.50 x + $17,431.74

when x = 800 y = $66,631.74

Cost Function:

37

1.CM Ratio = CM = 60% VC = 40% of sales Sales

$12,000 x .60 = $7,200

2. Sales $9,000

x .60

CM $5,400

FC (6,000)

NI ($600)

NO

3. BE ($) = FC = $3,000 = $5,000 = $5,000

CM Ratio .60

4. Before After

Rev. $120,000 [12,000 x $10]

x .60

CM $72,000

FC 18,000

NI $54,000

Rev. $144,000 [18,000 X $8]

x .60

CM $86,400

FC (20,000)

NI $66,400

YES

Clair’s Toys

38

The Costume Company $800,000 ÷ $8.00 = 100,000 expected (budgeted) DLH… 4 DLH per unit

FIXED OVERHEAD  Spending N/A Volume   Actual FOH Budgeted FOH Budgeted FOH Applied FOH BQ × SP SQ × SP $802,000 $800,000 $800,000 (25,250)(4) × $8

$808,000

$2,000 U $8,000 F

$6,000 F

Flexible Budget Variance = $2,000

WHERE: BQ = Budgeted Qty. × Std. Allowed

39

Cox Company

Price

AQ * AP AQ * SP SQ * SP18,000 * $3.60 SP = $3.40

18,000 * SP$64,800 $61,200

AQ * SP SQ * SP15,000 * $3.40 16,000 * $3.40

$51,000 $54,400

$3,600 u

Quantity/ Usage

$3,400 F

40

The Cutters (A)

PDOR =Est. MOH

Est. Activity=

780,000,000

10,000 DLH= 78,000 per DLH

78,000 per DLH × 80 DLH = 6,240,000 pesos applied to The Hunter

78,000 per DLH × 400 DLH = 31,200,000 pesos applied to The Carver

The Hunter (pesos)

The Carver (pesos)

Sales 19,500,000 Sales 53,000,000 Cost: Cost: Direct materials (4,500,000) Direct materials (10,000,000) Direct labor (1,200,000) Direct labor ( 6,000,000) Mfg. overhead (6,240,000) Mfg. overhead (31,200,000) Gross profit 7,560,000 Gross profit 5,800,000

41

The Cutters (B)

Manufacturing Overhead Pool

Cost Driver

Allocation Base Application Rate

Pool 1: 75,000,000 pesos 750,000

Number of parts

75,000,000 ÷ 750,000 =

100 pesos per part

Pool 2: 100,000,000 pesos 25

Number of production runs

100,000,000 ÷ 25 =

4,000,000 pesos per production run

Pool 3: 350,000,000 pesos 2,000

Number of machine hours

350,000,000 ÷ 2,000 =

175,000 pesos per machine hour

Pool 4: 100,000,000 pesos 25,000

Number of components tested

100,000,000 ÷ 25,000 =

4,000 pesos per component tested

Pool 5: 155,000,000 pesos 10,000

Number of direct labor hours

155,000,000 ÷ 10,000 =

15,500 pesos per direct labor hour

Use these rates to assign overhead to The Hunter and to The Carver

42

Allocation Rate

Pool 1: 100 pesos per part

Pool 2: 4,000,000 pesos per production run

Pool 3: 175,000pesos per machine hour

Pool 4: 4,000pesos per component tested

Pool 5: 15,500pesos per direct labor hour

Activity

15,000 units × 3 parts per unit

1production run

16machine hours

1,000components tested

80direct labor hours

Cost (pesos)

4,500,000

4,000,000

2,800,000

4,000,000

1,240,000

16,540,000

1,203 (Rounded)

Total mfg. overhead for 15,000 Hunters

Manufacturing overhead per cutter

Allocation Rate

Pool 1: 100 pesos per part

Pool 2: 4,000,000 pesos per production run

Pool 3: 175,000pesos per machine hour

Pool 4: 4,000pesos per component tested

Pool 5: 15,500pesos per direct labor hour

Activity

100,000 units × 1 part per unit

1production run

48machine hours

100components tested

400direct labor hours

Cost (pesos)

10,000,000

4,000,000

8,400,000

400,000

6,200,000

29,000,000

290

Total mfg. overhead for 100,000 Carvers

Manufacturing overhead per cutter

THE HUNTER THE CARVER

The Cutters (B) (p. 2)

43

The Cutters (B) (p. 3)

The Hunter (pesos)

The Carver (pesos)

Sales 19,500,000 Sales 53,000,000 Cost: Cost: Direct materials (4,500,000) Direct materials (10,000,000) Direct labor (1,200,000) Direct labor ( 6,000,000) Mfg. overhead (16,540,000) Mfg. overhead (29,000,000) Gross profit (2,740,000) Gross profit 8,000,000

PROFIT PER ACTIVITY-BASED COSTINGThe Cutters (B)

The Hunter (pesos)

The Carver (pesos)

Sales 19,500,000 Sales 53,000,000 Cost: Cost: Direct materials (4,500,000) Direct materials (10,000,000) Direct labor (1,200,000) Direct labor ( 6,000,000) Mfg. overhead (6,240,000) Mfg. overhead (31,200,000) Gross profit 7,560,000 Gross profit 5,800,000

PROFIT PER JOB-ORDER COSTING The Cutters (A)

44

Cutting Edge Skis

Shaping and Milling Dept.

November 1997

(Round to 3 decimal places)

WIP Units

200

5000

400

4800Out

BI

IN

EI

DM

50%

40%

CC

30%

25%

WIP - $ (Wtd. Avg.)

DM $3000

CC $1,000

DM $74,000

CC 70,000

DM $2,483.84

CC $1,449.00

$3,932.84

4800 * 30.014

= $144,067.20

= 400 * 40% * $15.524

= 400 * 25% * $14.490

OutBI

IN

EI

E.U.

DM CC

4800

160

4960

4800

100

4900

Costs to Account For

DM CC

$3,000

$74,000

$77,000

$1,000

$70,000

$71,000

BI

IN

Total

$/EU

DMCC

$77,000 / 4960 = $15.524

$71,000 / 4900 = $14.490

$30.014

OUT

EI: (DM) 400 * 40%

EI: (CC) 400 * 25%

E.U.

45

WTD. WTD.AVG. AVG.

SP VC CM MIX CM SP

Boston $1200 $700 $500 60% $300 $720

Deluxe $5000 2000 $3000 40% $1200 $2000

$1500 $2720

1.

60% Boston = 1200 Boston = 1200 Boston

40% Deluxe = 800 Deluxe = 800 Deluxe

2000 units total @ BE

2,000 units

BE (units) = FC = $3,000,000 = 2,000 units BE

CM per unit $1500

2.BE ($) = FC = $3,000,000 = $3,000,000

CM Ratio $1500/$2720 .55

= $5,440,000 BE($)

-- OR ---

1200 x $1200 = $1,440,000

800 x $5000 = 4,000,000

$5,440,000

Deering Banjo Company

46

Q=DLH

$4.00 $900,000

(SP) 1,500,000 × 150/1000

Rate Eff

AQ x AP190,000 x $4.00$760,000

SQ x SP

180,000 X $4.00

$720,000

$760,000 ÷ 190,000AQ x SP

$0 $40,000 U

1,200,000 x 150/1000

=

1. FC $150,000

VC $720,000

$870,000

190,000 × $4.00

$760,000GIVEN

=

180,000

2.Duo Company

47

East Meets West (A)

BE (units) = FC + NI = $20,000 =CM per Units ($10 - $6)

BE ($) = FC + NI = $20,000 =CMR ( $4 / $10)

BE (units) = FC + NI = $20,000 + $15,000 =CM per Units $4

BE ($) = FC + NI = $20,000 + $15,000 =CMR 0.4

1. 5,000 units

$50,000

2. 8,750 units

$87,500

48

East Meets West (B)

SP(X) = FC + VC(X) + NI

$10(X) = $20,000 + $6(X) + .15($10)(X)$10(X) = $20,000 + $6(X) + $1.50(X)$2.50(X) = $20,000

X = * $10ea. = $80,000

Sales = FC + VC + NISales = $20,000 + .60(Sales) + .15(Sales).25(Sales) = $20,000

Sales =

1.

8000 units

$80,000

49

East Meets West (C)

BE(units) = FC + NI = $18,000 + $9,000 = $27,000CM per unit $10.40 - $6.80 $3.60

=

BE ($) = FC + NI = $18,000 + $9,000 = $27,000CMR $10.40 - $6.80 0.346

$10.40

=

1.

7500 units

$78,000

50

East Meets West (D)

NIBT = NI AT = $8,400 = $12,000 NIBT1 - TR 0.7

BE(units) = FC + NI = $20,000 + $12,000 =CM per unit $4

BE ($) = FC + NI = $20,000 + $12,000 =CMR 0.4

1.

8000 units

$80,000

51

East Meets West (E)Current BE ($) = FC + NI = $20,000 + $12,000 =

CMR 0.4

New BE ($) = FC + NI = $27,500 + $12,000 =CMR 0.5

This seems better

because don't have to sell

as much to achieve

target profit

But!

Current BE ($) = FC + NI = $20,000 =CMR 0.4

New BE ($) = FC + NI = $27,500 =CMR 0.5

Current MS Ratio = Actual Rev. - BE Rev. = $80,500 - $50,000 =Actual Rev $80,000

New MS Ratio = Actual Rev. - BE Rev. = $79,000 - $55,000 =Actual Rev $79,000

More Risky

$80,000

$79,000

$50,000

$55,000

.375

.304

52

Fast Company

VARIABLE-COSTING INCOME STATEMENTS

SalesLess variable expenses: Variable cost of goods sold a

Variable selling and administrative b

Contribution marginLess fixed expenses: Fixed overhead Fixed selling and administrativeNet income

$1,500,000

(900,000) (37,500)$ 562,500

(150,000) (50,000)$ 362,500

$1,000,000

(600,000) (25,000) $ 375,000

(150,000) (50,000)$ 175,000

$2,000,000

(1,200,000) (50,000)$ 750,000

(150,000) (50,000)$ 550,000

2002 2003 2004

a 2002: $6.00 × 150,000 = $ 900,000 2003: $6.00 × 100,000 = $ 600,000 2004: $6.00 × 200,000 = $1,200,000

b $0.25 per unit × Units sold

$4.00 + $1.50 + $0.50 = $6.00

53

Fast Company (p. 2)

ABSORPTION-COSTING INCOME STATEMENTS

SalesLess cost of goods sold: Variable manufacturing expense a

Fixed manufacturing expense b

Gross marginLess selling and admin. expenses: Variable selling and admin.c

Fixed selling and admin.Net income

$1,500,000

(900,000) (150,000)$ 450,000

(37,500) (50,000)$ 362,500

$1,000,000

(600,000) (100,000) $ 300,000

(25,000) (50,000)$ 225,000

$2,000,000

(1,200,000) (200,000)$ 600,000

(50,000) (50,000)$ 500,000

2002 2003 2004

a 2002: $6.00 × 150,000 = $ 900,000 2003: $6.00 × 100,000 = $ 600,000 2004: $6.00 × 200,000 = $1,200,000

b 2002: $1.00 × 150,000 = $ 150,000 2003: $1.00 × 100,000 = $ 100,000 2004: $1.00 × 200,000 = $ 200,000

c $0.25 per unit × Units sold

FOH per unit = Est. FOHNormal volume

=$150,000150,000 = $1.00 per unit

$4.00 + $1.50 + $0.50 = $6.00

54

Frodo CompanyThere are two ways students can approach this problem. Costs Keep Old Buy NewOperating costs ($75,000) ($20,000)Depreciation (NOT RELEVANT) ($30,000) ($30,000)Resale of old $2,000Purchase of new ($40,000)

_______ _______($105,000) ($88,000) $17,000 savings!

  Incremental

Change in operating cost $11,000 × 5 years = $55,000Resale of old machine $2,000Cost of new machine ($40,000)(Cost) or Savings $17,000

55

Funk and Wagnall

Relevant Irrelevant Opportunity Outlay Outlay Sunk

X (1.)X (2.)

X (3.)X (4.)

X (5.)X (6.)

X (7.)X (8.)

X X (9.)X (10.)

1.2.3.4.5.6.7.8.9.10.

56

Halo Products CompanyA.

B.

C.

D.

PDOR = Est. MOH

Est. Activity=

$200,000

32,000= $6.25

Applied MOH = PDOR * Actual Activity

= $6.25 * 36,400 = $227,500

MOH

Actual

$256,200

Applied

$227,500

Underapplied $28,700

$256,200 / 36,400 = $7.04

57

Hannibal CompanyDM

BI $23,400

Purch $160,000

$33,400

150,000

$100,000 $100,000

0

DL

IDL $20,000

Rent 21,000

Depr 30,000

Util . 5,978

76,978

76,978

0

$6,520

150,000

100,000

76,978

$7,498

326,000

WIP

$40,000

326,000

57,050

308,950

FG

308,950 308,950

0

COGS

I/S

$308,950

Sales Sp;amoes $55,000

Sales Comm. 38,000

Admin. 61,000

$600,000 Sales Rev

$137,050 NI

MOH

58

Hassett Company1998 budget requires 20,000 handles for use in the production of pots. Costs to manufacture the handles is as follows:

DM $.60DL $.40VOH $.10FOH $.20Total $1.30

 R&M Steel Co. has offered to supply handles for $1.25 each. Should Hassett MAKE or BUY? MAKE! $1.10 < $1.25  

DM, DL, VOH = relevant costs that change

59

Herd Company

Spend N/AVOH

AQ * AP AQ * SP SQ * SP SQ * SP$3.00

Spend VolumeFOH

Actual Budgeted Budgeted

50,000 * $6,000$300,000

42,000 $6.00$252,000

N/A

SQ * SPApplied

Eff

$48,000 u

60

VOH

Spending Efficiency

AQ x AP

$131,000

AQ x SP

121,000 x $.50

$60,500

$3,000U

SQ x SP

115,000 x $.50

$57,500

N/A

SQ x SP

115,000 x $.50

FOH

Actual

Budgeted

$110,000

Budgeted

$110,000

Applied

SQ x SP ($1)

115,000

Spending N/A Volume

$5,000 F

TOTAL

$178,500 $179,500

$3,000U

$172,500

Spending Efficiency Volume

$5,000 F$8000 U

Herman Company

61

Holland CompanyThe cost of a single unit of product under the two costingmethods would be:

Absorption VariableCosting Costing

DM, DL & Vbl MOH $5.00 $5.00Fixed MOH ($15,000/5,000 units) $3.00 - Total cost per unit $8.00 $5.00

Absorption costing Year 1 Year 2 Year 3 Total

Sales (@ $15.00) $75,000 $60,000 $90,000 $225,000Less COGS: Beg. Inv. (@ $8.00) 0 0 8,000 0 COGM (@ $8.00) 40,000 40,000 40,000 120,000 CGAS 40,000 40,000 48,000 120,000 End. Inv. (@ $8.00) 0 8,000 0 0 COGS 40,000 32,000 48,000 120,000Gross Margin 35,000 28,000 42,000 105,000Less S&A 26,000 25,000 27,000 78,000Net Income $9,000 $3,000 $15,000 $27,000

62

Holland Company (cont.)Variable costing Year 1 Year 2 Year 3 Total

Sales (@ $15.00) $75,000 $60,000 $90,000 $225,000Less vbl. exp: Vbl COGS (@ $5.00) 25,000 20,000 30,000 75,000 Vbl S&A (@ $1.00) 5,000 4,000 6,000 15,000Total vbl. exp. 30,000 24,000 36,000 90,000Contribution margin 45,000 36,000 54,000 135,000Less fixed exp: MOH 15,000 15,000 15,000 45,000 S&A exp. 21,000 21,000 21,000 63,000Total fixed exp. 36,000 36,000 36,000 108,000Net income $9,000 $0 $18,000 $27,000

A reconciliation of the net income figures for the two methodsover the three year period follows:

Year 1 Year 2 Year 3

Variable costing NI $9,000 $0 $18,000Add: FOH cost deferred in inv. under absorp. costing (1,000 units x $3.00) 3,000Less: FOH cost released from inv. under absorption costing (1,000 x $3.00) (3,000)Absorption costing NI $9,000 $3,000 $15,000

63

1.BE (units) = FC = $30,000 = 2000 units

CM per unit $35-$20

BE ($) = FC = $30,000 = $70,000 CM ratio $35-$20

$35

2. BE ($) = FC + NI = ($30,000 X 12) + $510,000 = $2,030,000 CM ratio $35-$20

$35

3. MS ($) = Actual Rev. – BE Rev.

= $2,030,000 – ($70,000 x 12)

= $2,030,000 - $840,000

= $1,190,000

MS Ratio = Actual Rev. – BE Rev.

Actual Rev.

= $2,030,000 - $840,000 = 58.6%

$2,030,000

4. Operating Income = NIAT = $864,000 = $1,440,000

I – TR = 1 - .4

BE (units) = FC + NI = $360,000 + $1,440,000 = 120,000 units annually,

CM per unit $35-$20

10,000 units monthly

Houghton’s Limited

64

The Hour RecordDistance traveled is the ‘score,’ determining who wins and who doesn’t, and seems to be best considered a financial measure. Net income or cash flow if you will. This is a historical measure; at any point in time this measure only tells you what has occurred in the past.

Bicycle speed is the predictive of what ‘score’ will be achieved. Measures that do this can be both financial (expected sales in dollars) and nonfinancial (expected sales in units).

Heart Rate is a measure of current effort, such as the amount (in units or dollars) of materials, labor and/or overhead being used in production. In general, with heart rate and with materials usage, lower is better. Again, this is a historical measure but is predictive to the degree that heart rate this minute will be the same as heart rate the next minute. Human body efficiency decreases over time, so heart rate will increase over time, but business efficiency should increase over time, and the corresponding efficiency measures should improve.

Can a target (or budgeted) distance be useful in this scenario? Or at least knowledge of the last record set? If after 30 minutes the rider is less than halfway toward the old record, someone should determine if the record can realistically be equaled or broken. If the record is unrealistic, the rider might as well cut his or her losses and save the energy for another task.

65

Howdy Company$602,000 / 70,000 = $8.60 / hr $735,000 / $420,000 = 1.75%

110 * $8.60 = $946.00 $680 * 1.75 = $1,190.00 $946 + $1190 = $2,136

DM

DL

MOH

$470

290

946

$1,706

DM

DL

MOH

332

680

1190

$2,202 $1706 + $2202 = $3908 / 50 units = $78.16

MOH

(65,000 * $8.60)

559,000

$4,000

0

$570,000

$11,000

underapplied

COGS

$11,000

MOH

$750,000

$13,000

($436,000 * 1.75)

$763,000

$13,000

0

COGS

$13,000

1.

2.

3.

4.

A – machine hours B – DL$

overapplied

66

J.B. Goode CompanyPDOR = Est. MOH = $135,000 = $13.50 per DLH

Standard [Applied MOH = Actual Activity × PDOR]

Custom [Applied MOH = Actual Activity × PDOR]

This part of the calculation is a little unusual because we are using actual MOH in the calculation rather than estimated MOH

Est. Activity 10,000

900 units × 10 DLH = 9000 DLH

×$13.50

$121,500 Applied MOH

100 units × 10 DLH = 1000 DLH

×$13.50

$13,500 Applied MOH

1.

67

J.B. Goode Company (p. 2)

2. STANDARD [Applied MOH = Actual Activity × PDOR]

Depr.Maint.Purch.Insp.IDMSuper.Supplies

3,0009,0001,500 400 900 400 900

×××××××

$10.00$ 1.50$11.00$12.00$15.00$28.00$ 3.00

=======

$30,000 13,500 16,500 4,800 13,500 11,200 2,700$92,200 Applied MOH ÷ 900 Guitars = $102.45 each

CUSTOM [Applied MOH = Actual Activity × PDOR]

Depr.Maint.Purch.Insp.IDMSuper.Supplies

1,0001,000 500 600 100 600 100

×××××××

$10.00$ 1.50$11.00$12.00$15.00$28.00$ 3.00

=======

$10,000 1,500 5,500 7,200 1,500 16,800 300$42,800 Applied MOH ÷ 100 Guitars = $428 each

68

J.B. Goode Company (p. 3)

3. CustomOLD WAY

CustomNEW WAY

DMDLMOHTOTAL

DMDLMOHTOTAL

$375$240$135$750

$ 375$ 240$ 428$1,043

NO ... $1,000 Revenue does not cover the manufacturing expense

The single biggest reason for the higher overhead costis the supervision required for the custom guitars.

69

Jolly Candies

1. BE(units) =CM per unit

FC + NI=

$400 + $300

$1= 700 units

2. BE(units) =CM per unit

FC + NI=

$400 + $0

$1= 400 units 400 units × 120% = 480 units

(volume 20% above breakeven volume)

Rev (480 units × $4)- VC (480 units × $3) CM- FC NI

$1,920 1,440$ 480 400$ 80

3. NIBT = NIAT

1- TR=

$300

1 – 40%= $500

BE(units) =CM per unit

FC + NI=

$400 + $500

$4.00 - $3.50= 1,800 units

70

Judge Ely JeansDM

$29,500

98,400 95,600

$32,300

DL

$118,400 $118,400

0

MOH

$ 7,200

44,800

4,800

$21,600

10,400

15,200

35,200

$139,200 $139,200

0

60% * 36000 =

WIP

$49,600

95,600

118,400 340,400

139,200

$62,400

FG

$37,600

340,400 326,000

$52,000

COGS

$326,000 $326,000

0

I/S

$326,000 $715,200

$7,200

$14,400

4,000

2,640

123,200

15,300

166,740

492,740

$222,460 NI

S&A

40% * $36,000 =

COGS

ACOGS

COGM

71

Kaitlyn Korporation

Beg $1,500Collections $90,000 $125,000 Disbursements

BorrowEnd $12,000

Cash

$32,000

72

Kennedy Company

Price Quantity

AQ * AP AQ * SP SQ * SP1,600 * AP

1,600 * $3.60$5,520 $5,760

AQ * SP SQ * SP * $3.60 1,450 * $3.60

$240 F

AP = $3.45

73

Lands End Men’s Suits Price Qty/Usage

AQ × AC AQ × SC SQ × SC10,000 × $5.00 10,000 × $6.00$50,000 $60,000

$10,000 F

AQ × SC SQ × SC (2700)(4) × $6.00 (2700)(3.5) × $6.00 $64,800 $56,700

$8,100 U

CAN’T!

Actual Cost < Standard Cost = FAVORABLEActual Quantity < Standard Quantity = FAVORABLE

Standard Allowedfor Actual Output

(in units)

74

Mango Motors

Absorption Costing

Income Statement

For the Year Ended Dec. 31, 1996

Rev. $810,000

COGS (540,000)

(60,000)

GM $210,000

S&A (67,500)

(50,000)

NI $92,500

Variable Costing

Income Statement

For the year Ended Dec. 31, 1996

Rev. $810,000

VC (540,000)

(67,500)

CM $202,500

FC (60,000)

(50,000)

NI $92,500

75

McKay Mills1.

2.

PDOR = Est. OH / Est. Activity

= $1,335,000 / 1645

(500 + 410 + 735)

PDOR = $811.55 per DLH

Actuals:

Yarn 455 * $811.55 = $369,255.25

Fabric 420 * $811.55 = $340,851.00

Clothing 750 * $811.55 = $608,662.50

$1,318,768.75

MOH

Actual

$1,372,000.00

Applied

$1,318,768.75

$53,231.25 underapplied

76

Moehrle ManufacturingCosts to manufacture:DM $45DL $30VOH $30FOH $22Total $127 A special order is received to produce monitors with a special logo that would increase production costs by $5.00 per monitor * *What is the minimum selling price Moehrle should accept for this order? 

$105+ $5$110 minimum selling price for special order

77

Narcissus Needles1.

2.

3.

Utilities $10,000

Depr. 15,000

Dupr. Sal. 30,000

Janitorial 6,000

Ins. 9,000

Total MOH $70,000

Est. DLH = 3,500

PDOR = Est. OH / Ect. Activity

= $70,000 / 3,500

PDOR = $20

Apploied OH = PDOR * Activity

= $20 * 3,600 DLH

Applied OH = $72,000

Utilities $10,500

Depr. 15,000

Supr. Sal. 30,000

Janitorial 5,200

Ins. 8,500

Total MOH $69,200

Actual

$69,200

Applied

$72,000

MOH

$2,800 Overapplied

78

Paradise Company

40,000 10,000 80,000

Purch. 1,000,000 1,000,000 1,000,000 1,000,00050,000 10,000 50,000

RM (RM-lbs.) WIP (RM-lbs.) FG (RM-lbs.)

1,010,000

79

Pirates, Inc.

Rate Efficiency

AQ × AC AQ × SC SQ × SC28,000 × $11.70 28,000 × $12.00 (22,000)(1.25) × $12.00

$8,400 F $6,000 U

$2,400 F

Std. Allowed forActual Output(in units)

80

Plentiful Printing, Inc.$15,000

95,000

$20,000

90,000

DM

$3,000

90,000

40,000

60,000

8000

2000

3000

$13,000

$180,000

WIP

$20,000

180,000

$15,000

185,000

FG

$40,000

2,500 * $16

$40,000

0

DL

Actual

$57,000

3000

Applied

$40,000 * 1.5

= $60,000

3000

0

MOH

$185,000

$182,000

0

3000

$182,000

COGS

$182,000

57,000

12,000

$285,000

$34,000

I/S

BI

Purch

EI

BI

EI

Adj. COGS

Selling

Admin

Sales

NI

COGM

COGS

Adj. COGS

81

Portland Pilots Association

Assets 2004 2003Cash $67,200 $40,800 $26,400 IncreaseAccounts receivable $24,000 $36,000 (12,000) DecreasePrepaid expenses $4,800 $0 4,800 IncreaseLand $156,000 $0 156,000 IncreaseBuilding $192,000 $0 192,000 IncreaseAccumulated depreciation - building ($13,200) $0 (13,200) IncreaseEquipment $32,400 $12,000 20,400 IncreaseAccumulated depreciation -- equipment ($3,600) $0 (3,600) IncreaseTotal $459,600 $88,800

Liabilities and Stockholders' EquityAccounts payable $70,800 $4,800 $66,000 IncreaseBonds payable $156,000 $0 156,000 IncreaseCommon stock $60,000 $60,000 0Retained earnings $172,800 $24,000 148,800 IncreaseTotal $459,600 $88,800

Increase/DecreaseChange

31-Dec

Portland Pilots AssociationComparative Balance Sheets

82

Portland Pilots Assoc. (p. 2)

Operating ActivitiesNet income $166,800Adjustments to convert net income to a cash basis: Depreciation expense $18,000 Loss on sale of equipment 3,600 Decrease in accounts receivable 12,000 Increase in prepaid expenses (4,800) Increase in accounts payable 66,000 94,800Net cash provided by operating activities $261,600

Investing Activities Purchase of building ($192,000) Purchase of equipment (30,000) Sale of equipment 4,800Net cash used by investing activies (217,200)

Financing Activities Payment of cash dividends (18,000)Net cash used by financing activities (18,000)

Net increase in cash and cash equivalents $26,400Cash and cash equivalents at beginning of year 40,800Cash and cash equivalents at end of year $67,200

Noncash investing and financing activities Issuance of bonds payable to purchase land $156,000

PORTLAND PILOTS COMPANYStatement of Cash Flows -- Indirect Method

For the Year Ended December 31, 2004

83

Rex Company

Price

AQ * AP AQ * SP SQ * SP30,000 * $2.80 30,000 * $3.00 29,000 * $3.00

$84,000 $90,000 $87,000

$3,000 / 1,000 in Q = $3.00

$3,000 F

Quantity

$3,000 u$6,000 F

84

Rikky-Tikky-Tavy TaffyRikky-Tikky-Tavi Taffy

Comparative Balance Sheets31-Dec

Assets 2002 2001

Current Assets:

Cash $3,600 $26,400 ($22,800) Decrease Accounts receivable 144,000 98,400 $45,600 Increase Inventory 129,600 102,000 $27,600 Increase Prepaid expenses 6,000 9,600 ($3,600) DecreaseTotal current assets 283,200 236,400 $46,800 IncreaseLong-term investments 64,800 88,800 ($24,000) DecreasePlant and equipment 523,200 336,000 $187,200 IncreaseLess: Accumulated depreciation 72,000 60,000 $12,000 IncreaseNet plant and equipment 451,200 276,000 $175,200 IncreaseTotal assets $799,200 $601,200 $198,000 Increase

Liabilities and Stockholders’ Equity

Current liabilities:

Accounts payable $86,400 $72,000 $14,400 Increase Accrued liabilities 22,800 21,600 $1,200 IncreaseTotal current liabilities 109,200 93,600 $15,600 IncreaseBonds payable 156,000 0 $156,000 IncreaseDeferred income taxes 14,400 12,000 $2,400 IncreaseStockholders’ equity:

Preferred stock 98,400 114,000 ($15,600) Decrease Common stock 318,000 285,600 $32,400 Increase Retained earnings 103,200 96,000 $7,200 IncreaseTotal stockholders’ equity 519,600 495,600 $24,000 IncreaseTotal liabilities and stockholders’ equity $799,200 $601,200 $198,000 Increase

85

Rikky-Tikky-Tavi Taffy (p. 2)

Operating ActivitiesNet income $37,200Adjustments to convert net income to a cash basis: Depreciation expense $33,600 Increase in accounts receivable (45,600) Increase in inventory (27,600) Decrease in prepaid expenses 3,600 Increase in accounts payable 14,400 Increase in accrued liabilities 1,200 Gain on sale of investments (12,000) Gain on sale of equipment (3,600) Increase in deferred income taxes 2,400 (33,600)Net cash provided by operating activities $3,600

Investing Activities Sale of investments $36,000 Sale of equipment 12,000 Purchase of plant and equipment (217,200)Net cash used by investing activies (169,200)

Financing Activities Increase in bonds payable $156,000 Increase in common stock 16,800 Payment of cash dividends (30,000)Net cash used by financing activities 142,800

Net increase in cash and cash equivalents ($22,800)Cash and cash equivalents at beginning of year 26,400Cash and cash equivalents at end of year $3,600

Noncash investing and financing activities Preferred stock converted to common stock $15,600

RIKKY-TIKKY-TAVI TAFFYStatement of Cash Flows -- Indirect Method

For the Year Ended December 31, 2002

86

BI $131,400

PURCH. $319,700

EI $126,100

DM

(a.)325,000

$293,480

DL

$293,480

MOHIOL

DEPR.

PTY TAX

FIRE INS.

IDM

UTIL.

DEPR.

$22,700

$31,000

$12,600

$7,840

$11,600

$36,000

$44,000

920 x 29= 26,680 DLH

26,680 x $600

= $160,080

$165,740

UnderappliedMOH

$5,660(c.)

$5,660

PRIME COSTSDM $325,000DL 293,480

$618,480(b.)

WIPBI $49,000

$325,000

$293,480

$160,080

$73,900EI

$753,660(d.)

FG$87,300

$753,660

BI

763,660

$77,300EI

COGS$763,660

$5,660

$769,320 (f.)

$769,320

0

I/S

SOLO SALARIES

ADU.

PTY TAX

FIRE INS.

COMM.

ADMIN.

UTIL.

RENT

DEPR.

MISC.

R & ALLOW

$1,281,700 Sales$769,320

$85,000

$44,000

$5,400

$1,960

$28,500

$167,200

$9,000

$8,700

$17,400

$4,300

$36,100$1,177,200

$104,820 X 40% = $41,928 $104,820 $62,892

NI BT

(f.)

NI AT

0

0

Roley Poley

PER UNIT

$753,660 / 920 = $819

(e.)

87

Rondini Magic CompanyRondini Magic Company

Comparative Balance Sheets December 31

Assets

2004

2003

Change Increase/Decrease

Cash $ 64,800 $ 44,400 $ 20,400 Increase Accounts receivable 81,600 31,200 50,400 Increase Inventories 64,800 - 0 - 64,800 Increase Prepaid expenses 4,800 7,200 2,400 Decrease Land 54,000 84,000 30,000 Decrease Building 240,000 240,000 - 0 - Accumulated depreciation – building (25,200) (13,200) 12,000 Increase Equipment 231,600 81,600 150,000 Increase Accumulated depreciation – equipment (33,600) (12,000) 21,600 Increase Total $ 682,800 $ 463,200 Liabilities and Stockholders’ Equity Accounts payable $ 27,600 $ 48,000 $ 20,400 Decrease Accrued liabilities 12,000 - 0 - 12,000 Increase Bonds payable 132,000 180,000 48,000 Decrease Common stock ($1 par) 264,000 72,000 192,000 Increase Retained earnings 247,200 163,200 84,000 Increase Total $ 682,800 $ 463,200

88

Rondini Magic Co. (p. 2)

Operating ActivitiesNet income $150,000Adjustments to convert net income to a cash basis: Depreciation expense $39,600 Increase in accounts receivable (50,400) Increase in inventories (64,800) Decrease in prepaid expenses 2,400 Decrease in accounts payable (20,400) Increase in accrued liabilities 12,000 Loss on sale of equipment 2,400 (79,200)Net cash provided by operating activities $70,800

Investing Activities Sale of land $30,000 Sale of equipment 40,800 Purchase of equipment (199,200)Net cash used by investing activies (128,400)

Financing Activities Redemption of bonds (12,000) Sale of common stock 156,000 Payment of cash dividends (66,000)Net cash used by financing activities 78,000

Net increase in cash and cash equivalents $20,400Cash and cash equivalents at beginning of year 44,400Cash and cash equivalents at end of year $64,800

RONDINI MAGIC COMPANYStatement of Cash Flows -- Indirect Method

For the Year Ended December 31, 2004

89

S & P Corporation

1. BE(units) =CM per unit

FC + NI=

$300,000 + $0

$10 - $5= 60,000 units

2. BE($) =CM Ratio

FC + NI=

$300,000 +$0

50%= $600,000

90

Sam Enterprises

Cans Can-ettes

Units produced per hour 3 1

Contribution margin per unit $ 3 $ 6

Contribution margin per hour (the resource constraint)

$ 9 $ 6

Total contribution for 1,000 hours $9,000 $6,000

THE WINNER!

91

Sleepwell, Inc.DM

$18,500

80,000 81,700

$16,800

DL

$40,500 $40,500

0

MOH

$105,750 $105,750

0

WIP

$12,000

81,700

40,500 $216,400

105,750

$23,500

FG

$10,200

261,450 217,550

$9,100

COGS

$217,550 217,550

0

I/S

$ 82,450

$400,000$217,550 100,000

92

Smith Company Price Qty

AQ × AC AQ × SC SQ × SC 36,000 × $8.35 36,000 × $8.25 $300,600 $297,000

$3,600 U Std. Allowed for Actual Output(Std. Amt. x Actual Units)

AQ × SC SQ × SC31,800 × $8.25 (3200)(10) × $8.25 $64,800 $56,700

$1,650 F

CAN’T!

93

Smith Company (p. 2)

Rate Efficiency

AQ × AC AQ × SC SQ × SC 11,520 × $9.80 11,520 × $9.65 (3200)(3.5) × $9.65 $112,896 $111,168 $108,080

$1,728 U $3,088 U

$4,816 U

Translating Dr. Fessler’s “picture” into Formulas:1. AQ × (SC – AC) = Rate Variance2. SC × (SQ – AQ) = Efficiency variance

94

SoMuch StereosAbsorption Costing

Income Statement

For the Year Ended Feb. 28, 2000

Rev. $89,000

COGS: DM (22,000)

DC (14,000)

VOH (9,000)

FOH (10,000)

GM $34,000

S&A: VSE (5,000)

FSE (16,000)

FAE (14,000)

NI ($1,000)

Variable Costing

Income Statement

For the Year Ended Feb. 28, 2000

Rev. $89,000

VC: DM (22,000)

DL (14,000)

VOH (9,000)

VSE (5,000)

CM $39,000

FC: FOH (10,000)

FSE (16,000)

FAE (14,000)

NI ($1,000)

95

1.y = a + bx b = hi-lo $

hi-lo activity

b = $390,700 - $180,000

4,980 – 2,180

= $210,700

2,800

b = $75.25 per machine hour

$390,000 = a + $75.25 (4,980)

$390,700 = a + $374,745

a = $15,955

Cost Formula

y = $15,955 + $75.25x

y = $15,955 + $75.25 (3,500)

y = $15,955 + $263,375

y = $279,330

2.

Southern Carpets

96

Southern Carpets (cont.)SOUTHERN CARPETSRegression Analysis

SUMMARY OUTPUTY = Costs X = Hours

J $341,062 3,467 Regression StatisticsF $346,471 4,426 Multiple R 0.740754563M $287,328 3,103 R Square 0.548717323A $262,828 3,625 Adjusted R Square 0.503589056M $220,843 3,081 Standard Error 46999.24973J $390,700 4,980 Observations 12J $337,924 3,948A $180,000 2,180 ANOVAS $376,246 4,121 df SS MS F Significance FO $295,041 4,762 Regression 1 26858506459 26858506459 12.1590602 0.005852441N $215,121 3,402 Residual 10 22089294751 2208929475D $275,343 2,469 Total 11 48947801211

Coefficients Standard Error t Stat P-value Lower 95% Upper 95%Intercept 86152.88975 61152.29174 1.408825202 0.18921362 -50102.93094 222408.7104X = Hours 57.27371965 16.42500026 3.486984399 0.005852441 20.6765321 93.87090721

y = $57.27 x + $86,152.89

when x = 3,500 y = $286,597.85when x = 4,000 y = $315,232.89

Cost Function:

97

Steinmueller Steins, Inc.Step 1 Step 5

DM CC100% 70% 5,000

DM $6,00020,000 23,000 CC $7,000 23,000*$1.98

100% 80% 2,000 $13,000$45,540

DM $18,000Step 2 CC $18,000

$36,000DM CC

out DM $1,920 2000*100%*$.9623,000 23,000 CC $1,632 2000*80%*$1.02

EI 2000*100% 2,000 $3,5522000*80% 1,600

E.U. 25,000 24,600

Step 3 BI + IN = EI + Out

BI $6,000 $7,000IN $18,000 $18,000

$24,000 $25,000

Step 4Compute E.U. Costs

$24,000/25,000 $25,000/24,600 =$.96 =$1.01626 = $1.02

$1.98

WIP-Molding (units)

EU

Total Costs To Account For:

WIP-Molding ($)

98

Stiegl Corporation

Spend N/A

AQ * AP AQ * SP SQ * SP SQ * SP15,000 * 15,000 * $2.00 12,000 * $2.00

$27,500 $30,000 $24,000

$6,000 u

$3,500 u

Eff

$2,500 F

99

Strange Fire, P.C.

 

 

 

Variable Overhead

Spending Efficiency N/A

Actual VOH AQ × SC SQ × SC 2900 × $20 2800 × $20

$54,000 $58,000 $56,000

$4,000 F $2,000 U

2,000 F

Flexible Budget Variance = $2,000 F

100

The Swizzle Manufacturing Co.

10,000

$200,000

$25,000

185,000

DM

BI

Purch

EI

$15,000

185,000

230,000

385,200

$22,000

793,200

BI

EI

WIP

$30,000

793,200

$43,200

$780,000

BI

EI

FG

$230,000

(21,400 hrs)

$230,000

0

DL

MOH

63,000

90,000

54,000

76,000

102,000

385,000 21,400 * $18

= $385,200

$ 200

0

Utilities

IDL

Maint.

Depr.

Rental

COGS

I/S

779,800

7,000

110,000

136,000

19,000

18,000

1,200,000

$130,200

COGS

Utilities

S&A Salaries

Advertising

Depr.

Rental

Sales

NI

Est.OH

Est Activity

$360,000

20,000 DLH

= $18 per DLH

200

$779,800

$ 200

$780,000

$779,800 Adj. COGS

PDOR =

=

COGS

101

Swizzle (p. 2)The Swizzle Manufacturing Company

Schedule of Cost of Goods Manufactured

For the Year Ended December 31,1994

Direct material:

Raw materials inventory, 1-1-94

Add: Purchases of raw materials

Total materials available

Deduct: Raw materials inventory, 12-31-94

Raw materials used in production

Direct Labor

Manufacturing overhead:

Utilities......................................................................................

Indirect Labor..............................................................................

Maintenance.................................................................................

Depreciation.................................................................................

Building rent..............................................................................

Actual overhead costs

Add: Overapplied overhead

Manufacturing overhead applied to WIP

Total manufacturing costs

Add: Beginning work in process inventory

Deduct: Ending work in process inventory

Cost of Goods Manufactured

$10,000

200,000

$210,000

(25,000)

$185,000

230,000

$63,000

90,000

54,000

76,000

102,000

$385,000

200

385,200

$800,200

15,000

$815,200

(22,000)

$793,200

102

Swizzle (p. 3)The Swizzle Manufacturing Company

Schedule of Cost of Goods Sold

For the year ended December 31, 1994

Finished goods inventory, 1-1-94

Add: Cost of goods manufactured

Goods available for sale

Less: Ending finished goods inventory

Cost of goods sold

Deduct: Overapplied overhead

Adjusted cost of goods sold

$30,000

793,200

823,200

(43,200)

$780,000

(200)

$779,800

103

Swizzle (p. 4)The Swizzle Manufacturing Company

Income Statement

For the Year Ended December 31, 1994

Sales

Less: Cost of Goods Sold

Gross Margin

Less: Selling and administrative expenses:

Utilities

Salaries

Advertising

Depreciation

Building rental

Net Income

$1,200,000

(779,800)

$420,000

$290,000

$130,200

7,000

110,000

136,000

19,000

18,000

104

Thorp Company

Rate

AQ * AP AQ * SP SQ * SP2,000 * $5.00 2,000 * $5.50 1,727 *$5.50

$10,000 $11,000 $9,500

$1,000 F

Eff

$1,500 u

105

…can sell just milk, or can process the milk further into cheese, ice cream and yogurt  Product: Cheese Ice Cream ButterSales value at split off (i.e., milk) $400,000 $500,000 $100,000Sales value if processed further $450,000 $679,000 $110,000Cost of further processing $ 17,000 $103,000 $ 14,000 Joint costs $150,000Joint costs are allocated by the sales value at split off Relevant!

Cost $400,000 $17,000 $450,000 Cheese :o)

Raw Milk - Joint Costs $150,000 $500,000 $103,000 $679,000 Ice Cream :o)

$100,000 $14,000 $110,000 Butter :o(

 

$1,000,000 revenue from selling product just as milk

Tillamook Cheese Co.

Cost to produce butter from milk higher than the increased revenue

106

Toledo Torpedo CompanyCost Comparison – Replacement of Machine, Including Relevant and Irrelevant Items

Keep Replace Difference

Sales $400,000 $400,000 $ ---Expenses: Variable 320,000 224,000 96,000 Old machine (book value) Depreciation write-off 40,000 --- --- -or- Lump-sum write-off --- 40,000* --- Disposal value --- 4,000* 4,000 New machine (purchase price) --- 60,000 (60,000)Total expenses $360,000 $320,000 $40,000Operating income $40,000 $80,000 $40,000

* In a formal income statement, these two items would be combined as a "loss on disposal" of $36,000.

FOUR YEARS TOGETHER

RELEVANT Benefit(purchase new machine)

107

True Blue Corporation

 

 

 

Variable Overhead

Spending Efficiency N/A

Actual VOH AQ × SC SQ × SC 400 × $3.85 420 × $3.85

$1,600 $1,540 $1,617

$60 U $77 F

$17 F

Flexible Budget Variance = $17 F

108

Tub Company

Rate

AQ * AP AQ * SP SQ * SP2,200 * $8.40 2,200 * $8.00 2,000 * $8.00

$18,480 $17,600 $16,000

$880 u

Eff

$1,600 u

109

Ward Company

June June July August SeptemberApril: ?May: ?June: $30,000 * 30%

JulyMay: ?June: $30,000 * 50%July: $50,000 * 30%

AugustJune: $30,000 * 15%July: $50,000 * 50%Aug: $70,000 * 30%

SeptemberJuly: $50,000 * 15% $7,500Aug: $70,000 * 50% $35,000Sept: $60,000 * 30% $18,000

$60,500

PART 1 PART 2

July:Aug:Sept:Sept:

$50,000 × 80% × 15% =$70,000 × 80% × 50% = $60,000 × 80% × 30% =$60,000 × 20% =

$ 6,000$28,000$14,400$12,000$60,400

20% of sales collected as cash in month of sale80% of sales are on account and collected later

110

Whiskers Products, Inc.

April April May JuneTotal

QuarterFeb: $55,000 * 20% $11,000Mar: $60,000 * 30% $18,000 $54,000Apr: $50,000 * 50% $25,000

MayMar: $60,000 * 20% $12,000Apr: $50,000 * 30% $15,000 $57,000May: $60,000 * 50% $30,000

JuneApr: $50,000 * 20% $10,000May: $60,000 * 30% $18,000 $55,500June: $55,000 * 50% $27,500Total: $54,000 $57,000 $55,500 $166,500

2ND Quarter Cash Receipts

111

Womack Company

650

PRODUCTION: 4,60010%*5000= 500

FG-Units

4,450

112

Young ProductsYoung Products

Sales budgetFor the First Quarter

Units 100,000Unit price x $15.00Sales $1,500,000

Young ProductsProduction Budget

For the First QuarterSales (in units) 100,000Desired end. inv. 12,000

113

Young Products (cont.)

Young ProductsDirect Materials

For the First QuarterUnits to be produced 104,000DM per unit (lbs) x 4 Production needs (lbs) 416,000Desired end. inv. 6,000 Total needs (lbs) 422,000Less: Beg. inv. (lbs) (4,000) Materials to be purch. (lbs) 418,000

Young ProductsDirect Labor BudgetFor the First Quarter

Units to be produced 104,000Labor: Time per unit x 0.5 Total hours needed 52,000