Disusun oleh : Muhammad Firman (Akuntansi FE UI 2012)

AKUNTANSI MANAJEMEN
CHAPTER 9
INVENTORY COSTING AND CAPACITY ANALYSIS
Inventory Costing Choices: Overview
1. Absorption Costing product costs are capitalized;
period costs are expensed
2. Variable Costing variable product and period costs
are capitalized; fixed product and period costs are
expensed
3. Throughput Costing only Direct Materials are
capitalized; all other costs are expensed
Costing Comparison
Variable costing is a method of inventory costing in which
only variable manufacturing costs are included as
inventoriable costs
Absorption costing is a method of inventory costing in
which all variable manufacturing costs and all fixed
manufacturing costs are included as inventoriable costs
Differences in Income
Operating Income will differ between Absorption and
Variable Costing. The amount of the difference represents
the amount of Fixed Product Costs capitalized as Inventory
under Absorption costing, and expensed as a period costs
under Variable Costing
Comparative Income Statements

Comparative Income Effects

Variable
Costing

Absorption
Costing

Are fixed product costs

inventoried?

No

Yes

Is there a production-volumevariance?

No

Yes

Are classifications between

variable & fixed costs
routinely made?

Yes

Infrequently

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Disusun oleh : Muhammad Firman (Akuntansi FE UI 2012)

Comparative Income Effects

Fixed Indirect Manufacturing Cost

Performance Issues and Absorption Costing

Managers may seek to manipulate income by producing too
many units. Production beyond demand will increase the
amount of inventory on hand. This will result in more fixed
costs being capitalized as inventory.That will leave a smaller
amount of fixed costs to be expensed during the
period.Profit increases, and potentially so does a mangers
bonus

Comparison of Alternative Inventory Costing Systems

Variable Direct Manufacturing Cost

Inventories and Costing Methods

One way to prevent the unnecessary buildup of inventory
for bonus purposes is to base managers bonuses on profit
calculated using Variable Costing.
Drawback: complicated system of producing two inventory
figures ,one for external reporting and the other for bonus
calculations
Other
Manipulation
Schemes
Beyond
Simple
Overproduction
Deciding to manufacture products the absorb the highest
amount of fixed costs, regardless of demand (cherrypicking). Accepting an order to increase production, even
though another plant in the same firm is better suited to
handle that order, Deferring maintenance.

Variable Indirect Manufacturing Cost

Fixed Direct Manufacturing Cost

Management
Countermeasures
for
Fixed
Cost
Manipulation Schemes
1. Careful budgeting and inventory planning
2. Incorporate an internal carrying charge for
inventory
3. Change (lengthen) the period used to evaluate
performance
4. Include nonfinancial as well as financial variables in
the measures to evaluate performance
Extreme Variable Costing:Throughput Costing
Throughput costing (super-variable costing) is a method of
inventory costing in which onlydirect material costs are
included as inventory costs. All other product costs are
treated as operating expenses

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Disusun oleh : Muhammad Firman (Akuntansi FE UI 2012)

Throughput Costing Illustrated

Costing Systems Compared

EXERCISES
1.) Lohis Company manufactures metal cans used in foodprocessing industry. As Lohiss senior financial analyst, you
are asked to recommend a method of inventory costing.
The following data are for year 2009, 2010, and 2011 :
Year
Unit Sold
Unit
Produced
Sales Price
Direct Material
Direct Labor
V. FOH
F. FOH
V.SGA
F.SGA

2009
6.000
8.000

2010
10.000
10.000

2011
12.000
10.000

Rp90.000

Rp90.000

Rp90.000

Cost of Production
Rp 12.000 per unit
Rp 8.000 per unit
Rp 6.000 per unit
Rp200.000.000

Selling General and Administrative Expenses

Rp 10.000 per unit
Rp80.000.000

Required :
Prepare Operating Income Statements using Absorption
costing, Variable costing !
Sales Price
DM/unit
DL/unit
V.FOH/unit
F.FOH
F.FOH/unit for 2009
F.FOH/unit for 2010 and 2011
Manufacturing Cost/unit for 2009
(Absorption Costing)
Manufacturing Cost/unit for 2010 and 2011
(Absorption Costing)

90,000
12,000
8,000
6,000
200,000,000
25,000
20,000
51,000

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46,000
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Disusun oleh : Muhammad Firman (Akuntansi FE UI 2012)

Manufacturing Cost/unit for 2009-2011
(Variable Costing)
V.SGA/unit
F.SGA

26,000
10,000
80,000,000

25000 = 200.000.000 / 8000

20000 = 200.000.000 / 10000
51000 = 12000 + 6000 + 25000
46000 = 12000 + 8000 + 6000 + 20000
26000 = 12000 + 8000 = 6000
Income Statement ( Asorption costing)
Absorption Costing
Revenue
COGS :

2009
540,000,000

Beginning Inventory

DM

96,000,000

DL

64,000,000

V.FOH

48,000,000

Allocated F.FOH
Cost of Goods
Available for Sale

200,000,000

Ending Inventory

102,000,000

408,000,000

COGS :

306,000,000

Gross Margin

234,000,000

Fixed SGA

80,000,000

Variable SGA

60,000,000

Operating Income

94,000,000

Income Statement (Variabe Costing)

Variable Costing
Revenue
COGS :
Beginning Inventory

DM

96,000,000

DL

64,000,000

V.FOH
Cost of Goods
Available for Sale

48,000,000

Ending Inventory

52,000,000

2009
540,000,000

2.) Assume Stassen Company on January 1, 2012, decides

to contract with another company to preassemble a large
percentage of the components of its telescopes. The
revised manufacturing cost structure during the 2012
2014 period is as follows:
Problem for Self-Study
Variable manufacturing cost per unit produced
Direct materials
$ 250
Direct manufacturing labor
20
Manufacturing overhead
. 5
Total variable manufacturing cost per unit produced 275
Fixed manufacturing costs
$480,000
Under the revised cost structure, a larger percentage of
Stassens manufacturing costs are variable with respect to
units produced. The denominator level of production used
to calculate budgeted fixed manufacturing cost per unit in
2012, 2013, and 2014 is 8,000 units. Summary information
pertaining to absorption-costing operating income and
variable-costing operating income with this revised cost
structure is as follows:
2012
2013
2014
Absorp-costing(Op.Inc) $1,500,000 $1,560,000
$2,340,000
Var-costing (Op.Inc)
1,380,000 1,650,000
2,190,000
Difference
$120,000 $(90,000) $150,000
1. Compute the budgeted fixed manufacturing cost per
unit in 2012, 2013, and 2014. Required
2. Explain the difference between absorption-costing
operating income and variablecosting, operating income in
2012, 2013, and 2014, focusing on fixed manufacturing,
costs in beginning and ending inventory.
3. Why are these differences smaller than the differences
in Exhibit 9-2?
4. Assume the same preceding information, except that for
2012, the master-budget capacity utilization is 10,000 units
instead of 8,000. How would Stassens absorptioncosting
income for 2012 differ from the $1,500,000 shown
previously? Show your computations.
Solution
1.

208,000,000

Variable COGS

156,000,000

Variable SGA

60,000,000

Contribution Margin

324,000,000

Fixed Manufacturing
Cost

200,000,000

Fixed SGA

80,000,000

2. Absorption costing operating income Variable costing

operaing income = Fixed manufacturing cost in ending
inventory under absorption costing Fixed manufacturing
cost in beginning inventory under absorption costing
2012
1500000 1380000 = (60 per unit x 2000 per unit) (600
per unit x 0 unit)
120000 = 1200000

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Disusun oleh : Muhammad Firman (Akuntansi FE UI 2012)

2013
1560000 1650000 = (60 per unit x 500 per unit) (60
per unit x 2000 unit)
-90000 = -90000
2014
2340000 2190000 = (60 per unit x 3000 per unit) (60
per unit x 500 unit)
3. Subcontracting a large part of manufacturing has greatly
reduced the magnitude of fixed manufacturing costs. This
reduction, in turn, means differences between absorption
costing and variable costing are much smaller
4. Given the higher master-budget capacity utilization level
of 10,000 units, the budgeted fixed manufacturing cost rate
for 2012 is now as follows:

The manufacturing cost per unit is $323 ($275 + $48). So,

the production-volume variance for 2012 is
(10,000 units - 8,000 units) x $48 per unit = $96,000 U
The absorption-costing income statement for 2012 is as
follows:

this case also indicates a favorable variance. in this case we

have the materials price variance of $1,000 F.
CHAPTER 3
COST-VOLUME PROFIT ANALYSIS
A Five-Step Decision Making Process in Planning & Control
Revisited
1.Identify the problem and uncertainties
2.Obtain information
3.Make predictions about the future
4.Make decisions by choosing between alternatives, using
Cost-Volume-Profit (CVP) analysis
5.Implement the decision, evaluate performance, and learn
Foundational Assumptions in CVP
Changes in production/sales volume are the sole cause for
cost and revenue changes
Total costs consist of fixed costs and variable costs
Revenue and costs behave and can be graphed as a linear
function (a straight line)
Selling price, variable cost per unit and fixed costs are all
known and constant
In many cases only a single product will be analyzed. If
multiple products are studied, their relative sales
proportions are known and constant
The time value of money (interest) is ignored
Basic Formulae

The higher denominator level used to calculate the

budgeted fixed manufacturing cost per unit means that
fewer fixed manufacturing costs are inventoried ($48 per
unit 2,000 units = $96,000) than when the master-budget
capacity utilization was 8,000 units ($60 per unit 2,000 units
= $120,000). This difference of $24,000 ($120,000
$96,000) results in operating income being lower by
$24,000 relative to the prior calculated income level of
$1,500,000.

CVP: Contribution Margin

Manipulation of the basic equations yields an extremely
important and powerful tool extensively used in Cost
Accounting: the Contribution Margin
Contribution Margin equals sales less variable costs
CM = S VC
Contribution Margin per Unit equals unit selling price less
variable cost per unit
CMu= SP VCu

* U = Unfavorable (exceed the expectation)

** F = Favorable ( under the expectation)

Contribution Margin also equals contribution margin per

unit multiplied by the number of units sold (Q)
CM = CMux Q

We can abbreviate whether a variance is favorable or

unfavorable by writing the letter "F" or "U" next to the
dollar amount of a variance, accordingly. For
instance,thereis $1,000 value has a negative sign, which in

Contribution Margin Ratio (percentage) equals contribution

margin per unit divided by Selling Price
CMR = CMuSP

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Disusun oleh : Muhammad Firman (Akuntansi FE UI 2012)

Interpretation: how many cents out of every sales dollar are
represented by Contribution Margin
Basic Formula Derivations
The Basic Formula may be further rearranged and
decomposed as follows:
Sales VC FC = OI
(SP x Q) (VCux Q) FC = OI
Q (SP VCu) FC = OI
Q (CMu) FC = OI
OI = Operating Income
Remember this last equation, it will be used again in a
moment
Breakeven Point
Recall the last equation :
Q (CMu) FC = OI
A simple manipulation of this formula, and setting OI to
zero will result in the Breakeven Point (quantity):
BEQ = FC Cmu
At this point, a firm has no profit or loss at the given sales
level ,If per-unit values are not available, the Breakeven
Point may be restated in its alternate format:
BE Sales = FC CMR
Breakeven Point, extended: Profit Planning
With a simple adjustment, the Breakeven Point formula can
be modified to become a Profit Planning tool. Profit is now
reinstated to the BE formula, changing it to a simple sales
volume equation
Q = (FC + OI)
CM
CVP: Graphically

CVP and Income Taxes

From time to time it is necessary to move back and forth
between pre-tax profit (OI) and after-tax profit (NI),
depending on the facts presented. After-tax profit can be
calculated by:
OI x (1-Tax Rate) = NI
NI can substitute into the profit planning equation through
this form:
OI = .
NI .
(1-Tax Rate)
Sensitivity Analysis
CVP Provides structure to answer a variety of what-if
scenarios. What happens to profit if :
Selling price changes
Volume changes
Cost structure changes
Variable cost per unit changes
Fixed cost changes
Margin of Safety
One indicator of risk, the Margin of Safety (MOS) measures
the distance between budgeted sales and breakeven sales:
MOS = Budgeted Sales BE Sales
The MOS Ratio removes the firms size from the output, and
expresses itself in the form of a percentage:
MOS Ratio = MOS Budgeted Sales
Operating Leverage
Operating Leverage (OL) is the effect that fixed costs have
on changes in operating income as changes occur in units
sold, expressed as changes in contribution margin

Profit Planning, Illustrated

OL = Contribution Margin
Operating Income
Notice these two items are identical, except for fixed costs

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Disusun oleh : Muhammad Firman (Akuntansi FE UI 2012)

Effects of Sales-Mix on CVP
The formulae presented to this point have assumed a single
product is produced and sold. A more realistic scenario
involves multiple products sold, in different volumes, with
different costs. The same formulae are used, but instead
use average contribution margins for bundles of products.
Multiple Cost Drivers
Variable costs may arise from multiple cost drivers or
activities. A separate variable cost needs to be calculated
for each driver. Examples include:
Customer or patient count
Passenger miles
Patient days
Student credit-hours
Alternative Income Statement Formats

United Airlines has just announced a revised payment

schedule for all travel agents. It will now pay travel agents
a 10% commission per ticket up to a maximum of $50. Any
ticket costing more than $500 generates only a $50
commission, regardless of the ticket price.
1. Under the old 10% commission structure, how many
round-trip tickets must Wembley sell each month
(a) to break even
(b) to earn an operating income of $7,000?
2. How does Uniteds revised payment schedule affect
your answers to (a) and (b) in requirement 1?
Solution
1. Wembley receives a 10% commission on each ticket: 10%
$900 $90. Thus,
a.

b. When target operating income $7,000 per month,

2. Under the new system, Wembley would receive only $50

on the $900 ticket. Thus,
a.

EXERCISES
Wembley Travel Agency specializes in flights between Los
Angeles and London. It books passengers on United
Airlines at $900 per round-trip ticket. Until last month,
United paid Wembley a commission of 10% of the ticket
price paid by each passenger. This commission was
Wembleys only source of revenues. Wembleys fixed costs
are $14,000 per month (for salaries, rent, and so on), and
its variable costs are $20 per ticket purchased for a
passenger. This $20 includes a $15 per ticket delivery fee
paid to Federal Express. (To keep the analysis simple, we
assume each round-trip ticket purchased is delivered in a
separate package. Thus, the $15 delivery fee applies to
each ticket.)

b.
.
The $50 cap on the commission paid per ticket causes the
breakeven point to more than double (from 200 to 467
tickets) and the tickets required to be sold to earn $7,000
per month to also more than double (from 300 to 700
tickets). As would be expected, travel agents reacted very
negatively to the United Airlines announcement to change
commission payments. Unfortunately for travel agents,
other airlines also changed their commission structure in
similar ways.

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