Chpt05 Cost Volume- Change in activity affect CM & NOI.

. Ex: pop Cart $5 (FC) Cost $1 (VC) Selling P $1.50 TC = ($1.00 Q) + $5

CM=Rev - VC CM= NOI + FC Contributes to cover FC after BE point = = (unit CM Q) FC

ex: $1.50 VC -$1.00SellingP .50 CM

| | | |

CM unit - How much $ is each unit contributing to FC &

ex: .50 Selling Price VC (DM, DL, OH, Commissions, etc.)

CM Ratio for every $1 in the reg. .19 covers FC => Income

or

_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BREAKEVEN BE = [Sales=VC + FC], CM = FC Once reached NOI will increase by the amount of the unit CM 1. Calculate CM ex: sold 12 pops (12 $1.50) $18 VC (12 $1.00) -$12 Total CM $ 6 ex: Per unit 18/12 = $1.50 12/12 =$1.00 6/12 = $ .50 BE in Sales 1. Calculate CM Ratio Selling P VC = CM

ex: $ 18 - $ 12 $ 6 ex:

18/18 12/18 6/18

100% 67% 33% For each $1 of sales .33 contributes to FC

2.

BE in units

= 10 pops to sell to BE

2. BE pt. in Sales

= $15 in sales to BE

_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ Margin of Safety (MOS) How far sales can before a net loss. Buffer. Lower MOS the higher risk of NOT breaking even. MOS in Units Budgeted sales units BE sales units MOS in Sales Budgeted sales revenue $ BE sales $ MOS % in Sales
( )

(or actual) (or actual) _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _

Variable Cost Ratio For every $1 in the reg. it costs .81 to make Degree of Operating Leverage predicts

= Sales VC + FC BE = VC + FC Loss = Sales VC + FC

Target in units ex: = 210 pops %

Target in Sales sales need to meet target ex: = $318.18

sales on Operating Income

_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _

% in operating income. How much impact CM has on income.

in Operating Income Impact of

for every % income will %

greatest closest to BE point

VC vs FC improves

Degree of Operating Leverage %

in Sales (can be exp)

NOI change if Sales $$ = Sales CM _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _

Chpt06 Variable & Absorption Costing, Segment Reporting

Absorption Costing traditional *Variable Costing product costs include on VC (DM, DL, VMOH) Selling & Admin ex: DM + DL + VMOH = unit product cost ex: $12,000+$3,000+$600=$15,000unit prod.cost Sales ( P Q) Sales Categorizes FC & VC -VCOGS [#sold ( DM,DL, VMOH]) -COGS [#sold (DM, DL, VMOH, MOH) FMOH, Selling & Admin are Period Costs -V Selling & Admin (# sold VS&A) (unit product cost Q) Easier to use CVP (unit product cost Q) = CM = Gross Margin Absorption Costing All production costs are treated as product costs (DM, DL, MOH) - FMOH -Selling & Admin ex: DM + DL + FMOH (Total FMOH / units produced) + VMOH = COGS - Fixed Selling & Admin = NOI ex: $12,000+$3,000+$600+($42,000/2)=$36,000 unit product cost = NOI Assigns FMOH to units (FMOH / # produced) A portion of FMOH resides in inventory when units remain unsold: Deferred Exp. (future period exp.) Month VC I.S. AC I.S Beg. Inv. End Inv. FMOH Result is positive operating income when sales are less than BE point _______NOI NOI Deferred FMOH appear to be variable w/ respect to units sold they are NOT can lead to Jan 700,000 = 700,000 0 0 0 Inappropriate pricing & decisions to drop products that are in fact profitable. Feb 700,000 < 740,000 0 40,000 40,000 Mar 950,000 >910,000 40,000 0 (40,000) Absorption > Variable Costing NOI b/c FMOH included in product cost than exp. on I.S. _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __ __ _ _ __ _ _ __ _ o Units produced = Units sold No Change in Inv. AC NOI = VC NOI Traceable Segment FC: incurred b/c of segment. If segment didnt exist FC o Units produced > Units sold AC NOI > VC NOI wouldnt exist. o Units produced < Units sold AC NOI < VC NOI Common FC: FC that supports company operations Segment Margin: a segment CM traceable FC GAAP/IFRS: req. publicly traded co. to use AC & segment financial data on annual reports _
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _

Income Stmt. VC use Contribute, VC vs FC

Chpt07 Activity Based Costing (ABC) Traditional Absorption Costing Primarily used-external financial reporting Mgrs need cost info more to make internal decisions ABC supports internal decision making assign costs to cost objects based on activity supplement to usual costing systems - Product Costs (DM, DL, MOH) - Price correctly to cover price

Differences btwn Tradition & ABC Costing 1) ABC Non Manufacturing costs can be assigned to products
(if product caused cost).

ABC Steps: 1)

Define: Activity, Cost Pools (lump together), Activity Measures (# of ___ ex: hrs)

Trad.- Non Manufacturing costs cannot be assigned to products 2) ABC Manufacturing costs, such as organization-sub staining costs & idle capacity costs can be excluded from product costs. Trad. No Manufacturing costs can be excluded from product costs.
3)

2) Assign OH to Cost Pools (What drives this cost activity cost . -What % of the cost pool is the activity = $ ex: Cost Pool $330 includes cable 15%, www 12%, food 73% = $50, $40, $240.

3) Calculate Activity Rate (Cost Allocation)

ex: cable TC $50, T#Activity. 300 hrs

ABC Many cost pools based on measure of activity are used. Trad. Few cost pools that rely on allocation bases are used.

= .16 per hour

4) Apply OH Costs to Cost Object: Rate Activity Traditional Cost System

DM + DL + MOH = Total Cost Assigned to Products - How much OH should be allocated to the cost object (product)? ex: .16 16 (hrs used) = $2.56 for month

Activity Based Costing System Direct Costs: DM + DL, Indirect Costs: Supporting DL + Batch setup Labor + Product Sustaining = Total Cost Assigned to Products Product Margin Traditional Costing Product Margin ABC Est. Sales (y) Sales OH pu (z) = Est. MOH/Est. Total DLhs=POR - DM DL pu (u) given - DL Selling $ pu (a) - Supporting DL Less DM pu (b) - Batch Setups Less DL pu (c) - Product Sustaining ( btwn products) Total PC pu (d=a+b+c) = PM Total Cost (e=y d) Less applied OH (f=u z y) Margin (e f) _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ Chpt 08 Profit Planning Budgets communicate managers expectations regarding sales, prices, & costs. Planning forces to plan, coordinates activities. Controlling means of allocating, help measure against benchmarks. Should be based on the organizations strategic plan company goals & mission (so all decisions can meet). Budgets are only as good as the estimates made to prepare the budget. Budget must be accepted, utilized, & enforced to be successful. Successful is used as motivation and not a micromanagement tool. Successful if there is a seemless process and not over technically cumbersome. Master Budget comprehensive financial plan for the organization. Includes a # of separate but independent budgets. Starts with Sales Budget. Ends with Cash Budget, Budgeted Income Stmt, Budgeted Balance Sheet. Sales Budget-How many units will be sold Sales Expected When is the cash expected. Budgeted Sales Unit Selling Price = Total Sales

Production Budget How many units must be produced to me sales & inventory needs. ex: Budgeted Unit Sales + Desired Ending Inv. (% sales of next month)= Total Need Beg. Inv. = Required Production (Need) Direct Materials Budget How much material will be needed to meet production needs What is the expected cost to purchased & outflow of cash. ex: Budgeted Production(from Production Budget) Material Needed for each unit (multiple?)= Production Needs + Desired Ending inventory (materials) = Total Needs Beginning inventory (materials) = Required Material for Production Direct Labor Budget How much labor (hours) is expected for the production level What is expected cost of the labor. Budgeted Production DL Hours needed for each unit = Production DL Needs DL cost per hour = Total Direct Labor Cost MOH Budget How much OH will be incurred at eh production level What is the expected cash outflow for overhead (cost excluding depreciation) Ending Finished Goods Inventory Budget Based on unit product cost What is the cost of unit ending inventory. 1) Calculate Unit Product Cost 2) Calculate ending FG inventory in $ projected ending inventory (units) Unit Product Cost = Ending Finished Good Inventory. Selling & Admin Budget What are the expected selling & admin expensed & how much cash is expected to be disbursed for selling & admin expenses. Sales Variable Selling & Admin + Fixed Selling & Admin = Total Selling & Admin LESS Depreciation, LESS Cash Disbursements for Selling & Admin. Cash Budget - Expected receipts, disbursements, cash balance (excess or deficiency), and is any financing necessary for a deficiency. Cash Balance + Receipts = Total Cash Available Disbursements = Excess (Deficiency) of Cash available over Disbursements. Desired Ending Cash Balance + Deficiency of Cash Available over Disbursement = Required Borrowings Budgeted Income Stmt - What is expected net income for the budgeted sales. Budgeted Balance Sheet What is the expected resources (assets) & claims to those resources for the company at the end of the period. _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ Chpt09 Flexible Budgets Static Budgets are prepared for a single, planned level of activity. Flexible Budgets may be prepared for any activity level within the relevant range. Shows costs that should have been incurred at the actual level of activity, enabling apples to apples cost comparisons. Reveal variances related to cost control. Improves performance evaluation. How much of the favorable cost variance is due to lower activity, and how much is due to good cost control? Answer: Must Flex Cost @ Actual Activity Level. To Flex a budget need: TVC change in direct proportion to changes in activity & TFC remain unchanged within the relevant range. Flexible Budget Changes in Cost Changes in Activity [estimates revenue & costs (should have been of actual) @ any level of activity within a specific range measure of performance ID discrepancies between budgeted & actual costs. Planning Budget Defined level of activity before the start of the period. Cources(q1) 4 -4 -4 Planning Activity Flexible Spending Actual Student # (q2) 62 -60 -60
Budget Variance (1) (2) - (1)
(changes in act)

Budget (2)
*[

Variance * Results (3) (2) (3)

Wages($2950q1) $11800

Expenses:

Rev.($880q2) $54560 $1760U $52800 $1140U $51660

0 $11800 $720F $11080 Supplies ($280q2) $17360 $560F $16800 $410U $17210 Utilities($1230+$75q1)$1530 0 $ 1530 $410U $ 1940 Rent(FC) $2100 0 $2100 $140 U $ 2240 Admin $4086 $ 10F $4076 $564F $3512

($3600+$44q1+$5q2)