Ipe 481 Tahera Madam

IPE 481- INDUSTRIAL MANAGEMNET
TOPICS: TAHERA MADAM
Prepared By,
S. EHTESHAM AL HANIF (HRIDOY)

STUDENT ID: 0510035
E-MAIL: SEAHHRIDOY@GMAIL.COM
MOBILE: 88-01670839383
S. Ehtesham Al Hanif [0510035] BUET-ME (B-05)
:Lecture 1:
Accounting classification:
1) Managerial Accounting
2) Engineering Economy
Manager’s main duty is to make a plan. Then how can he execute that plan and how he controls
that (if problem arises). For this reason, manager need to know about some information related
to organization such as “cost”.
:Chapter – 2:
Organization
Types of organization:
3 types of organization in this world
These are:
1) Manufacturing
2) Merchandising
3) Service centre
Manufacturing Organization: from raw material buying to product production and handed over to
customer is done by Manufacturing Organization.
Merchandising Organization: buy from another person and then sell them to others
Service Centre Organization: selling services. Such as: Hospital, IT sector etc.
But costing is different in these 3 cases.
Cost in manufacturing organization:
1. Manufacturing cost
2. Non-manufacturing cost
Manufacturing Cost: it is classified into 3 parts.
a) Direct material: to produce a product what is used as raw material. One company’s product can
be other company’s raw material
b) Direct labor: it is also known as Touch Labor. To produce a product, those employee touches the
product directly
c) Manufacturing Over Head (MOH): it has 7 different terms.
1) Indirect material: small/minor material such as glue
Email: seahhridoy@gmail.com
2) Indirect labor: without touching product physically those employee transfer or handle
product from one place to another such as night-guard, sweeper
3) Maintenance and repair
4) Heat and light
5) Property tax
6) Depreciation
7) insurance
Non-manufacturing cost: it is divided into two groups.
These are:
1. Marketing & Selling: cost for reaching an order to a product customer

2. Administrating: they cost related to other employees except direct labor. Here is also
depreciation presents. Also insurance presents. If these costs are used for manufacturing
then it is known as manufacturing cost. And if it is for officer and outside industrial use then
as administrating.
Another Classification:
1. Period cost: (manufacturing cost)

2. Product cost: (non-manufacturing cost)
Product Cost: it is one type of inventoriable cost. It is cost needed to produce product and stock
them in the inventory.
Direct Direct
Material Labour
Prime Conversion
Cost Cost
Direct
Labor MOH
MOH has 3 different names also.
These are:
1. Indirect manufacturing
2. Factory Overhead
3. Factory Burden
:Lecture 2:
(1) Predicting cost behaviour in response to change in activity 
(2) Assigning cost to cost object
(3) Making decisions
(4) Cost of quality
(1) Predicting cost behaviour in response to change activity:

It is mainly two types. These are:
a) Variable cost: it will change with the change of activity
Example: if to produce 5 needs to spare 1000 TK then for 10 products it will cost 2000 TK
b) Fixed cost: it will not change with the change of activity
2000
1000 5000
5 10 5 10 15 20
Variable Cost Fixed Cost
Per unit variable cost fixed

Per unit fixed cost variable
Variable Cost (Per Unit) Fixed Cost (Per Unit)
(2) Assigning cost to cost object:

It is divided into 2 sub groups. These are: (1) Direct Cost (2) Indirect Cost
Direct Cost  Raw Material

Indirect Cost  Indirect Cost
 Direct cost for product is cost of raw material
 In the time of determining total cost of a factory, the cost for manager or salary of a manager
is known as a direct cost
(3) Making decisions:
It is divided into 3 sub groups.
These are: (1) Differential Cost (2) Sunk Cost (3) Opportunity Cost
a. Differential cost: if there is 2 different or alternate way to do a work, then for each way
having their own total cost value and the difference between these cost is known as
Differential Cost
One Way  5000 TK
Two Way  7000 TK
Differential Cost  2000 TK
b. Sunk Cost: some machines are 10/15 years old. If these machine become obsolete or
become non-suitable in the present time then the cost behind that machines are known as
Sunk Cost.
c. Opportunity Cost: if there are many ways to do a work. Then we just choose one way to
solve that process but other process we can also use but at the time of using one method,
others will be opportunity process and that related cost is Opportunity Cost.
(4) Cost of Quality:
It is divided into 4 sub groups.
These are:
(1) Prevention Cost (2) Appraisal Cost (3) External failure Cost (4) Internal failure cost
 Quality of Conformance: if we produce a product and that become 100% defect free then it
is known as quality of conformance. It has to be done for upper 4 cost types.
 (1), (2) : the cost to make a product defect free before it reaches the product customers
 (1) : the cost before producing a product, from different faculty expert gathering of
comments is done and should provide training to employee etc
 (2) : the cost related to the inspection and judgment done during production of product
 (4) : the cost to repair defect after detecting defect in the product before we deliver product
to a customer
 (3) : warranty cost (after handed over a product to customer, to sustain good name or profile
of company, there is a section to bear cost of repairing and maintenance to a certain period )
Total Quality Cost
Cost of Internal & External Failure

Cost
Cost of Prevention & Appraisal
Quality of Conformance
QUESTION: some cost will be given and asked to specify which cost is what type of cost (P-68 of R.BOOK)
In a problem we could ask to determine 3 things. Those are given below:
1) Schedule Cost of Goods Manufacture

2) Compute the Cost of Goods Source
3) Income Statement (Using 1 & 2)
XYZ Company
Schedule Cost of Goods Manufactured
For the year ended (Date) [Manufactured Date]
----------------------------------------------------------------------------------------------------------------------------
Direct Material
Raw Material (RM) Inventory (Date) ----------
(+) Purchase of Raw Materials ----------
Raw Material Available for Use ----------
(-) Raw Material Inventory Ending (Date) ----------
Raw Material Used in Production ---------- ----------
Direct Labor ----------
Manufacturing Over-Head
--------------------------------------------- ----------
--------------------------------------------- ----------
--------------------------------------------- ----------
Total Overhead Costs ---------- ----------
Total Manufacturing Cost ----------
(+) WIP Inventory, Jan 01 (Opening Date) ----------
(-) WIP Inventory, Dec 31 (Closing Date) ----------
Cost of Goods Manufactured ----------
 Right column: total sum

 Left Column: individual cost
 WIP  Work In Process
 If there is any mention of “Factory”, then it will be MOH cost
Costs of Goods Sold

----------------------------------------------------------------------------------------------------------------------------
Finished Goods Inventory (Opening Date) -----------
(+) Costs of Goods Manufactured -----------
Goods Available For Sale -----------
(-) Finished Goods Inventory (Closing Date) -----------
Costs of Goods Sold -----------
XYZ Company
Income Statement
For the year ended (Date)
----------------------------------------------------------------------------------------------------------------------------
Sales ----------
(-) Cost of Goods Sold ----------
Gross Margin ----------
(-) Selling & Administrative Expenses:
Selling Expenses -------------
Administrative Expenses -------------
Total Selling & Admin Expenses ----------
Net Operating Income (NOI) ----------
 Cost of goods sold  how much product produce and how much product sold (calculation)
 Net operating income  loss or profit (if loss then the positive value shoed under “(XXXX)” first
bracket)
 3 types of goods: (P-59 R.BOOK)
:Lecture 3:
o RM (Raw Material)
Klear-Seal Company
o WIP (Work In Process)
Schedule Cost of Goods Manufactured
o FG (Finished Goods)
For the year ended, December, 31
----------------------------------------------------------------------------------------------------------------------------
Direct Material
Raw Material (RM) Inventory, Jan 1 90000
(+) Purchase of Raw Materials 750000
Raw Material Available for Use 840000
(-) Raw Material Inventory Ending, Dec 31 60000
Raw Material Used in Production ---------- 780000
Direct Labor 150000
Manufacturing Over-Head
Utilities, Factory 36000
Depreciation, Factory 162000
Insurance, Factory 40000
Supplies, Factory 15000
Indirect Labor 300000
Maintenance, Factory 87000
Total Overhead Costs ---------- 640000
Total Manufacturing Cost 1570000
(+) WIP Inventory, Jan 01 (Opening Date) 180000
{1750000}
(-) WIP Inventory, Dec 31 (Closing Date) 100000
Cost of Goods Manufactured 1650000
Costs of Goods Sold

----------------------------------------------------------------------------------------------------------------------------
Finished Goods Inventory (Opening Date) 260000
(+) Costs of Goods Manufactured 1650000
Goods Available For Sale 1910000
(-) Finished Goods Inventory (Closing Date) 210000
Costs of Goods Sold 1700000
XYZ Company
Income Statement
For the year ended, December 31
----------------------------------------------------------------------------------------------------------------------------
Sales 2500000
(-) Cost of Goods Sold 1700000
Gross Margin 800000
(-) Selling & Administrative Expenses:
Selling Expenses 140000
Administrative Expenses 270000
Total Selling & Admin Expenses 410000
Net Operating Income (NOI) 390000
:Lecture 4:
:Chapter 5:
Cost Behaviour: Analysis & Use

Based on which variable cost increases and decreases known as Activity Base
Types of Variable Cost: (1) True Variable Cost (2) Step Variable Cost
TRUE Variable Cost STEP Variable Cost
Fixed Cost mainly 2 types. These are: (1) Committed Fixed Cost (2) Discretionary Fixed Cost
(1) Committed Fixed Cost:

a. It is one type of investment type fixed cost.
b. Such as: insurance cost, land cost.
c. Cost for long time planning and it can be changed for short time
(2) Discretionary Fixed Cost:
a. Salary based on annual decision of advertisement, labor
b. It can be changed for short time
Mixed Cost:
Total Cost = Fixed Cost + Variable Cost
 Y = a + b X =>
Here,
a = fixed cost
b = per unit variable cost
X = activity level / base
Example: Cost of land is 5000 TK. After that per unit cost 10 TK. So, Mixed Cost is 5010 TK. How much
the number of Product but the fixed cost is always same and it is = 5000 TK
1. Scattered graph plot

2. High Low Method 3 Methods to find Mixed Cost
3. Regression Analysis
Month Activity Level Maintenance Cost

Scattered Graph Patient Days
January 5600 $7900

February 7100 $8500
March 5000 $7400
April 6500 $8200
May 7300 $9100
June 8000 $7800
July 6800 $7600
Find out cost formula.

Solution:
Y = a + b X……..we should use this formula
b=slope
9800 Reference Point Y = 9800

Cost
b=
a 6000 Email: seahhridoy@gmail.com

Activity Level
High-Low Method
Variable cost =
Highest = 8000
Activity Level
Lowest = 5000
 9800
Cost
 7400
Variable cost = = = 0.8
Per unit (b)
Y=a+bX
 9800 = a + 0.8 x 8000

 a = 3400
 Y = $ 3400 + $ 0.8 X
We will get different types of value for different types of data. For this problem, usually
regression analysis used generally
Regression Analysis
∑ (∑ )(∑ )
b= (∑ ) (∑ )
∑ (∑ )
a=
X Y XY
30475000 45700 58700 388080000
b= $0.76
a= 3430.94 = $3431
:Lecture 5:
:Chapter 6:
:CVP (Cost, Volume, Profit) Analysis:
 Relations between C, V, P depends on 5 basic points:-
o Price of product
o Per unit variable cost
o Volume / level of activity
o Total fixed cost
o Mixed of products sold
Example: Speaker Manufacturer

Sales (400 units) $100,000
(-) V.E. (variable expenses) $ 60,000
(CM) Contribution Margin $ 40,000
(-) Fixed Expenses $ 35,000
Net Operating Income (NOI) 5,000
Per unit  $250
150
(CM) $100
In case of CVP analysis when we make decision then we determine CM.
If we sell one unit then our income will increase $100 more. This is known as CM.
Per Unit 
$250 $250 x 2
150 150
100 200
35000 35000
$34900 $34900
If we increase in this way then at a certain time CM will be 35000. Then there is no loss or profit.
This is known as “Break Even Point (BEP)”.
Sales (350 units) $87500

52500
35000
35000
0
In this way BEP is determined. What is the minimum number of product we should have to sell to
reach BEP.
Total Sales
Profit
Total Expenses
Q Loss
Fixed Expenses
% Sales
Per Unit  %Sales 

$250 100%
$150 60%
$100 40%
,
So, CM ratio = = = 40%
So, from this upper relation we can say that: if $1 increases in sales then CM will increase 40%. We can
observe the effect of sales increment and decrement over the CM by CM ratio.
Say, sales increased $30,000. Then income will be increased 40% that means (30,000 x 40%) = $ 12,000
1. Change in fixed cost and sales volume:
Previously they produce 400 units. Now they will increase 520 units more. Advertisement cost
will increase 10,000 (fixed cost will increase $10,000)
Sales (520 units) $ 130,000

(-) V.E. 78,000
CM 52,000
(-) F.E. 45,000
NOI $ 7,000
So, if sales increases in this way then NOI increases
Alternative Solution:
Expected total CM = 130000 x 40%
= 52,000
Present total CM = 10000 x 40%
= 40,000
12000
Change in F.E. 10000
2000
Another Method: (what is the sales quality is not necessary to know)
Incremental C.M.  30,000 x 40% = 12,000

(-) Incremental FE  10,000
2000
So, in all the methods if we increase F.E. & Sales Volume then NOI will also increases.
2. Change in Fixed cost, Sales Price & Sales volume:
Say  selling price will decrease $20 and fixed cost (for advertisement purpose) will increase
15000 and volume also increase 50%
Alternative Solution: $ 230

Total unit = 600 150
Expected total CM  600 x 80 = 48,000 ----------
CM = 80
Present total CM  400 x 100 = 40,000

8,000
(-) change in F.E. 15,000
(7,000) LOSS
<<what is asked in Q that method should have to apply for determining profit or loss>>
As here loss is found so we cant take this decision.
Fixed Cost ↑ , Sales Price ↓ ; Sales Volume ↑ then NOI ↓
3. Change in variable cost, change in fixed cost & sales volume:
Variable cost $15 will increase

Sales 15% will increase
F.E. will decrease $6000
Present F.E. = 29000 = (35000 - 6000)
Previously $150
Now, (150+15)=$165
Per unit 
Sales $250
$165
$85
Expected total CM  (400 + 400 x 0.15) x 85 = 39,100
Present total CM  400 x 100 = 40,000
900
(-) Fixed Expenses (F.E.) 6000
(5100)
Sales (460 units) $115000

(-) V.E. (460 x 165) 75900
CM 39100
(-) F.E. 29000
NOI $ 10100
Difference
15000  (115000 - 100000)
15900  (75900 - 60000)
(900)
6000
$5100
Less fixed expense  -(-6000) = $ 6000
Break Even Analysis:
Sales = V.E. + F.E. + Profit

Total unit = Q
So, 250 x Q = 150 x Q + 35,000 + 0
 Q=350  in this quantity NOI become 0.
X = 0.6 X + 35000 + 0
Sales 100% F.E. 60% of Sales
 X = $87,500
Sales at Break Even Point
:Lecture 6:
Contribution Margin Method:
BEP points in units sold = = = $350 ( )
BEP points in total sales dollars = = = $87500 ( )

.
Sales = V.E. + F.E. + Profit (4000)
<in here $4000 profit target>
( . .)
BEP points in units sold =
( . .)
BEP points in total sales dollars =
250 Q = 150 Q + 35000 + 4000
So, Q = 390
Or, units sold = = 390
Margin of safety:
Actual Sales ($) --- total sales ($) at BEP
 100000 – 875000
 12500
If it is high then it is much better
Quantity for MOS  390 – 350 = 40
Operating Leverage:
Degree of operating leverage =
$
Farm A = =4
$
Farm B = =7
<it makes relation or determine relation in between Sales and NOI>
If Sales increases 1 times then NOI will increases 4 times (for A).
Sales 75000 80000 100000 150000 225000
(-) VE 45000 48000 60000 90000 135000
CM 30000 32000 40000 60000 90000
(-)FE 30000 30000 30000 30000 30000
NOI 0 2000 10000 30000 60000
DOF 0.L=infinite 16 4 2 1.5
DOF 0.L  after BEP, if sales increases profit will increase too at the same rate but DOF 0.L. will
decrease. In this rate of profit is not as varied as Sales rate varied. So, after reaching quite close to the
BEP, sales select nearby BEP otherwise profit will not vary so much.
Structuring Sales Commissions
A B
Selling Price $ 100 $ 150
(-) V.E. 75 132
CM $ 25 $ 18
If it is mentioned that sales commission will be based on the highest price products sales maximum,
then seller will try to sell product B maximum. But CM of product B is low so factory profit is less. So,
intelligent approach would be providing sales commission over CM. Then everyone wants to sell product
A.
Sales mix & BEP analysis:

A Percent B % Total %
sales $20000 100% 80000 100% $100000 100%
(-)VE 15000 75% 40000 50% 55000 55%
CM $5000 25% 40000 50% 45000 45%
FE 27000
NOI 18000
BEP in dollars = = = $60000

.
Now, A  80% & B  20% of total sales
A B Total %
80000 20000 100000 100%
60000 10000 70000 70%
30000 30%
FE 27000
NOI 3000
BEP in dollars = = = $90000

.
:Lecture 7:
:Chapter 7
:Variable Costing + Absorption Costing:
Absorption Costing Variable Costing
Direct Material
Product Cost Direct Labor Product Cost
Variable M.OH
Fixed M.OH
Period Cost Variable Selling & Admin Expenses Period Cost
Fixed Selling & Admin Expenses
Example:
Variable costs per unit:
DM  $2
DL  $4
V.MOH  $1
Variable Selling & Admin  $3
Fixed cost per year
Fixed MOH  30,000
Fixed Selling & Admin  10,000
No. of units produced each year  6000
Determine unit cost for both costing & income statement with respect of two costing
Absorption Costing:
2+4+1+ (30000/6000) = $12
Variable Costing:
2+4+1 =$7
Selling price per unit  $20

Units in beginning inventory = 0
Units produced  6000
Units sold  5000
Ending inventory = 6000 – 5000 = 1000
Absorption Costing:
Sales (5000 x $20) $100000
Less costs of goods sold
Beginning Inventory 0
Add costs of goods manufactured (6000 x 12) 72000
(-) Ending Inventory (1000 x 12) 12000
Cost of goods sold 60000
Gross Margin 40000
(-) Selling & Admin(5000 x $3 + $10000) 25000
Variable Costing:
Those problems we should use variable costing where we can’t use absorption costing because fixed
cost and variable cost cannot be shown simultaneously in a table. So we should follow contribution
margin.
Sales (5000 x $20) $100000

Less variable expenses
Variable Costs of Goods sold
Beginning Inventory 0
(+) Variable manufacturing cost (6000 x $7) 42000
(-) Ending Inventory (1000 x 7) 7000
Variable Cost of goods sold 35000
Variable Selling & Admin(5000 x $3) 15000 50000
Contribution Margin 50000
(-) Fixed Expenses 40000
In two cases we found two values. Cost differences = ($12-$7)=$5 (unit cost)
1000 unit will be placed for sales. (1000 x $5)=$5000 is the total difference in between two income
methods.
Example:
Selling price per unit sold  $20
Variable manufacturing cost  $7
(per unit based)
Fixed manufacturing cost (per year)  $150000
Variable Selling & admin per unit  $1
Fixed selling & admin per year  $ 90000
Units in beginning Year 1 Year 2 Year 3

inventory 0 0 5000
Units produced 25000 25000 25000
Units sold 25000 20000 30000
Units in ending 0 5000 0
Absorption costing Year 1 Year 2 Year 3

Var. manufacturing cost $7 7 7
FOH $6 6 6
13 13 13
Variable Costing 6 6 6
(150000/25000)
VOH 7 7 7
Absorption Costing:
Year 1 Year 2 Year 3
sales 500000 400000 600000
(-)costs of goods sold
Beginning inventory 0 0 65000
(+) cost of goods 325000 325000 325000
manufacturing
Cost of goods sold 325000 260000 390000
Gross Margin 175000 140000 210000
(-) selling & admin
NOI
Year 2:
Absorption NOI > variable NOI
Year 3:
Absorption NOI < Variable NOI
absorption 60000 30000 90000

variable 60000 0 120000
Production = sales production > sales production < sales
:Lecture 8:
:Chapter 8:
:Activity Based Costing:
 No change is found in direct material and direct labor
 MOH can be divided into several groups
 Activity unit and activity costing: by multiplying these two we can find product cost
 Example: Ferris Company
Manufacturing Over Head $ 500000

Selling & Administrative OH $ 300000
-------------------------------------------------------------------------
Total Over Head Cost $ 800000
 Activities :
1. Unit level
2. Batch level
3. Product level
4. Customer level
5. Organization sustaining cost
Step 1: similar type’s activities should be apart identified

(a) Is any product present that even single product can be spared
(b) Single unit cost nothing but if we want to produce a lot then process of production will need
cost
(c) Single product matter whatever the number
(d) No matter of anything if customer came it will spare how much and how many batch
(e) If a company is in running position then there will be cost for that even they produce any
product or not.
Find :
(1) Perform the first stage allocation of overhead costs to the activity cost pool
(2) Calculate activity rate
(3) Distribution of resource consumption across activity cost periods
Assemble unit Processing Supporting Other Total
orders customer
MOH 50 35 5 10 100
Selling & 10 45 25 20 100
Admin
Total activity 1000 250 100
Units order customer
Solution:
(1)
Activity Cost Level
AU PO SC Other
Assembly units Processing units Supporting
customers
MOH 250000 175000 25000 50000
Sell & Admin OH 300000 135000 75000 60000
Total 280000 310000 100000 110000
(2)
Activity cost pool Old cost Activity measure Activity rate
Assembly units 280000 (/) 1000 280
Processing units 310000 (/) 250 1240
Supporting customers 100000 (/) 100 1000
(3)
- Order of 80 file cabinets in 4 steps
- It is not mention which help is provided to customer. Supporting customers are not available.
Activity cost pool Activity measure Activity rate Activity based costing
Processing order 4 (x) 1240
Assembly unit 80 (x) 280
Supporting customer Not applicable 1000
(4)
- Find product margin and customer margin
- NOI should be find out by Income Statement
Income Statement
Sale ($595 x 80) $47600
Less cost
Direct material ($180 x 80) 14400
Direct labor ($150 x 80) 4000
Assembly unit ($ 280 x 80) 22400
Processing order ($1240 x 4) 4960 45760
Product margin 1840
Less supporting customer 1000
Customer margin 840
:Lecture 9:
:Chapter 9:
:Profit Planning:
Final budget of a company always fixed at first.
Budgetary Control: after determining budget, resource is allotted among different department and then
control it
MASTER BUDGET
Selling &
Budget Income
Sales budget Administrative
Statement
Budget
Ending inventory Manufacturing

Production budget
budget overhead
Direct Material Direct labor

Budget budget
Cash Budget
Budgeted Balance
Sheet
Problem:
Budgeted sales for the next 5 months are 20000 units  april
50000 units  may
30000 units  june
25000 units  july
15000 units  august
Sales price per unit $10
<we should have to determine schedule of expected cas collection with sales budget>
Sales budget april may june quarter

Budgeted sales 20000 50000 30000 100000
(unit) x
Selling price per X 10 X 10 X 10 X 10
unit ($ 10/unit)
$200000 $500000 $300000 $1000000
Given:
o At April month sales will be collected 70% of total

o In next month sales will be collected 25% of total
o Rest of the 5% will be un-collectable
o At the starting of April, in bank they poses money around $3000
Schedule of expected cash collection

Accounts april may june quarter
receivable
Beginning balance 30000 30000
April sales
(70%) 140000 140000
(25%) 50000 50000
May sales
(70%) 350000 350000
(25%) 125000 350000
June Sales
(70%) 210000 210000
(25%) 170000 400000 335000 905000
Production Budget:
april may june july

Budgeted sales 20000 50000 30000 25000
(+)desired
Ending inventory 10000 6000 5000 3000
Total needs 30000 56000 35000 28000
(-)Beginning inventory 4000 10000 6000 5000
Required Production 26000 46000 29000 23000
<in April 4000 units at hand. For which month we will produce product, we also should produce 20%
product for next month>
In here, information needed for june but july is necessary in case of some calculation. But it is not
mandatory to show july result in table. Beginning inventory is the desired inventory of last month.
:Lecture 10:
Direct material budget:
April May June Quarter

Required 26000 46000 29000 101000
production in
units
RM per units (lb) X5 X5 X5 X5
Production needs 13000 230000 145000
(lb)
Add desired 23000 14500 11500
ending inventory (10% of 230000)
(lb)
Total needs (lb) 153000 244500 156500
Less beginning 13000 23000 14500
inventory (lb)
RM to be 140000 221500 142000
purchased (lb)
Cost of RM to be X 0.4 X 0.4 X 0.4
purchased at = 56000 = 88600 = 56800
$0.40 per pound
(lb)
July
23000 X 5=115000
Schedule of expected cash disbursements for material:
Accounts payable april May june quarter
Beginning balance $12000
April purchase
50% of $56000 28000
50% of $56000 28000
May purchase
50% of $88600 44300
50% of $88600 443000
June purchases
50% of $56800 28400
Total cash 40000 72300 72700 185000
disbursements for
materials
Direct labor budget:
april may june quarter

Units to be produced 26000 46000 29000
DL hour per unit X 0.05 X 0.05 X 0.05
Total hour of DL time needed 1300 2300 1450
DL cost per hour $10 $10 $10
Total DL cost 13000 23000 14500 $50500
Manufacturing Over-Head Budget:

Budgeted DL hours 1300 2300 1450 5050
V-MOH rate X $20 X $20 X $20
V-MOH 26000 46000 29000 101000
F-MOH 50500 50500 50500
Total MOH 76500 96500 79500 250500
(less) Depriciation 20500 20500 20500
Cash disbursements for MOH 56000 76000 59000 191000
:Lecture 11:
Ending Finished Goods Inventory Budget:
Ending finished goods inventory in units 5000
Unit product cost x $5
Computation of absorption unit product cost:
quantity Cost total

DM 5 0.4 2
DL 0.05 10 .5
MOH 0.05 50 2.5
Unit product cost 5
( )
Pre-determined overhead rate = = = 50
( )
Selling and administrative budget:

Budgeted sales in unit 20000 50000 30000
(x) variable selling and admin expenses 0.5 0.5 0.5
per unit
Variable selling & admin expenses 10000 25000 15000
(+) fixed selling & admin expenses 70000 70000 70000
Total selling & admin expenses 80000 95000 85000
(-)depriciation 10000 10000 10000
Cost for S&D 70000 85000 75000
Cash Budget:
Dividens  which money distributed among share holders
Company wants after every month goes they should poses $30000
From bank they can borrow maximum $75000
June  50000 of april should be repay to bank
No need to return money to bank in april so as interest. But in case of returning money in June they
should have to pay interest too. ($2000)
Master Budget Inter-relations (from book) & Self study - Balance

sheet & Income Statement
:Lecture 12 & 13:

Reference Book:
Engineering Economy – Ninth Edition – by Gerald J. Thvesen & W. J. Fabrycky
Money Changed in two Ways.
Time value of money:
1. Earning value: if we store some money in bank it will increase after certain period
2. Purchasing value: what we buy today at a certain price, we have to buy the same product at a
higher value in near future
# Interest:
1. Simple Interest: I = P x n x i
I = 1000 x 1 x 0.16
Or, I = 1000 x (81/365) x 0.16  from bank march to may money will be taken
2. Compound Interest:
1000 1000
1 2 3 4 1 2 3 4
160 1160
160 160 1160 1345.6 1560.9 1810.64

+ 320
i= annual interest rate (if not mention then we should assume annum)
n= no of annual interest period
p=present principle amount
A=a single payment, in a series of n equal payment , made at the end of each annual interest
period
F= a future amount
(a) Single payment compound amount factor (F/P, i, n)

F = P (1 + ) or F = P (F/P, i, n)
F
1 2 3
n
P
(b) Single payment present worth factor (P/F, i,n)

P=F ( )
Or, P = F(P/F, i,n)
F=1811
n=4
i=16%
P= ?
3. Equal payment series compound amount factor (F/A, i,n)

F = A(1) + A (1+i) + ………..+ A(1 + )
( )
 F=A
 F=A x (F/A, i,n) 1 ……………….. n
n n n n
4. Equal Payment Series Sinking Fund Factor (A/F, i,n)

A=F ( )
 A = F (A/F, i,n)
5. Equal payment series capital recovery factor (A/P,i,n)
P=1000, i =12% , n=8, A=?
A = P (1 + ) ( )
( )
=P ( )
Or, A = P (A/P,i,n)
6. Equal payment series present worth factor (P/A,i, n)
( )
P=A ( )
Or, P =A(P/A,i,n)
Problem:
400 400 400
1000 i=?
Solution:
P=1000 n=3 A=400
A/P = 400/1000 = 0.4
%
= 0.38803
% From chart
= 0.40211
i= 9.7% (by interpolation)
Problem:
A= 200 200 200
1500 i=12%
Solution:
P=1500 n=? A=200 i=12%
A/P = 200/1500 = 0.133
Table A.16  n=20.375
If in this way increment happened then it will not called “A” then it will called as “G” factor and
express in this way.
i) Uniform gradient series factor (A/G,i,n):
F=G(F/A,I,n-1)+…………..+G(F/A,I,1)
A=G/I – , ,
A=G(A/G,I,n)
Geometric –Gradient Series Factor:
, ,
P=Fx
0 1 2 3 n
= −1
200 G=300 2G=400 3G=500 4G
1 2 3 4 n
G always starts from 2nd year.

G is the increment of total amount of money. So, G=(300-200) = 100
Problem:
One pays the bank $1500 at 1st year.
2nd year $1700, 3rd year $1900, 4th year $2100, 5th year $2300, 6th year $ 2500
I=12% G=200 n=6
Table A.16  A/G = 2.1721
A = 2.1721 x 200 = $ 434.42
If G present then: A = A1 + A2
A2
A1
:Lecture 14:
Geometric-gradient series factor:
# Problem :
1st year base $360000, It increases at a rate of 7%. The present worth of 10 years of such receipts at an
interest rate of 15%, would be what?
7%
15% 10
<after 5 year they want $500000. We should keep a certain amount of money at a rate of interest is 20%
and that is F. but in the mean time after every one year they can withdraw a amount of money that is
known as A. at first what amount of money they left in bank is known as P. after each year if they want
interest at a certain rate then that is g. if they want increment after each year is G>
A A A 500000
P=200000 i=20%
= −1 i=15% g=7%
.
= −1
.
= 0.075
= 7.5%
.
, , , . ,
P= = =
.
For 7% P/A = 7.0236 For 8% P/A = 6.7101 For 7.5% P/A=6.867
So, P1=7.0236 x 360000 P2= 6.7101 x 360000
7.5 %  P = 2472066
So, P = = 2310392.52 ( )
.
# Compounding Frequency:
.
= 1+ −1
<if interest rate per month changed or after 1 year it is changed twice in a year then it will be the
desired formula>
r  nominal interest rate per year
I  effective interest rate in the time interval
L  length of time interval
M  reciprocal of the length of the compounding period of the year
l.m=c
c=number of compounding periods in the time interval
problem:
nominal interest rate is 6%, compounding monthly with the time interval of 1 year , find i?
r=6% l=1 year m=12 (in a year how many month is known as compounding monthly)
.
0.6
= + − 1 = 6.17%
12
:Lecture 15:
# Continuous compounding:
= −1
Where, r = nominal rate
Problem:
Loan interest rate 15%, compounded annually or 14% compounded weekly. Determine which one is
better?
. 0.14
= 1+ −1= 1+ − 1 = 15.005%
52
Weekly was 14%. But we found out annually 15.005% which is higher than last time 15%. So annually
15% is better option.
# bases for comparison of alternatives
I = 20%, n= 5
Proposal Proposal Proposal
P A B
Annual revenue $50000 $60000 $70000
Annual costs of operation, maintenance , & property $54000 $46000 $39000
taxes
Present investment 0 $50000 $100000
Estimate salvage 5 years from now 0 0 $10000
Salvage value  at the end of the line product sell price or money we got
# Cash Flow Diagram:
P
50000 (each)
5400
54000
A
60000
5400
50000 46000
B
70000
10000
5400
100000 39000
(1) Annual equivalent method

(2) Present equivalent method
P, A, B comparison: (1) & (2) should have to use. All those money should be taken to present or to
future so that they will stay at the same level.
A
A
A F
Annual equivalent method
P A B
Annual rev +50000 +60000 +70000
Annual costs of op, -54000 -46000 -39000
maint, prop.taxes
% %
Annual eq. -0
-A=P x -A=P x
present investment (1)
= 50000 x 0.3344 = 10000 x 0.3344
=-16720 =-33440
%
Estimate salvage 5 +0 +0
+A=F x
years from now
= 10000 x 0.1344
=+1344
-4000 -2720 -1096
None of the proposal can be accepted as far each case there occurs loss (-ve) sign.
H.W.: same thing have to do with present equation
Method A Method B
First Cost $100000 $200000
Life 4years 8years
Salvage at Retirement 0 $10000
Operating, maintenance & property tax cost Unknown say K1 per $10000 per year (less than
year for A)
Revenue Unknown say K2 per Unknown but same as for A
year
Cash flow diagram:

K2
A
10000 K1
A
B
F
K2
P
200000 K1 - 10000
If there is a problem exists in present equation method, then we will not consider it as problem.
But using annual equation method if there is any difference in calculated results then small year
should be converted to large year span. In case of here from 4years to 8years.
In here to in case of 8 year conversion we add 4years

more and initial investment at that time 100000
100000 100000
P1= 100000
P2= 100000 (we consider it as F) (if investment happened again after 4 years then it will convert
into P again from F)
Annual equation method:
Method A Method B
First cost:
A
P1+P2 P2
% %
=[ + ] =
= {100000 = 200000 x 0.2229
% %
= -44580
+[ }
= 157180 0.2229 = −35035.4
<P=P1+P2 =100000 + 57180 = 157180, where P1=100000 &

%
P2= = 100000 0.5718 = 57180 >
A B
Sal. At retirement +0 %
+= =
10000 0.0729 = +729
Op.,main. & property tax cost -k1 -(k1-10000)
Rev. +k2 +k2
-35035.4 –k1+k2 -33851 – k1+k2
So method B is preferable. If 6 year in A & 4 year in B then both should be converted into 12year
& so that A will be added by 2 part and B will be added 3 part.
Problem:
10 years ago to today a business man made his first annual deposit of $1000 into a fund paying 3%
interest compounded annually. 2 years ago the interest rate was increased to 4% on all funds. Find P,
the last of the deposit was made today.
:Lecture 16:
Capitalized equivalent method:
CE=?
= =
After each 4 year same thing happened infinite times. Now a days in this way it is determined.
Problem:
1 – 15 years  cost is $16000 per year
16 – Infinity  cost is $25000 per year
What should be invested at staring ? CE? Here i=8%
9000
9000
CE=? , i=8% CE=

. 25000
16000
%
16000 9000
= + = + [0.3153] = 200000 + 35471 = $23547.125 ( )
0.8 0.8
Problem:
G=500
$1000
∞
I=15%
CE=? 200
This module will be repeated for infinite period
A1=1000
%
A2=G x
%
A3=F x
A = A1+ A2 – A3
CE = A / i
Problem:
1500
1000
500; CE= 500/0.15
1 2 3 4 5 6 7 8
P=?; i=15%
%
P= + [0.497] = $8323.33
. .
Problem:
100 150 200 250
200 200 200
1 2 3 4 5 6 7
P=?; i=15%
Solution:
%
= + +
A1 = $1
A2 = 50 x 1.3263 =$ 66.315
%
200 − 166.35
= +
. .
= + 0.5718 = $ 1237.27
. .
A = A1 +A2
%
P1 =
P2 = this one is same for 200 or infinity

Ipe 481 Tahera Madam

Uploaded by

Document Information

Original Description:

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Ipe 481 Tahera Madam

Uploaded by

Copyright:

Available Formats

IPE 481- INDUSTRIAL MANAGEMNET

TOPICS: TAHERA MADAM

S. EHTESHAM AL HANIF (HRIDOY)

But costing is different in these 3 cases.

Cost in manufacturing organization:

Manufacturing Cost: it is classified into 3 parts.

Non-manufacturing cost: it is divided into two groups.

1. Marketing & Selling: cost for reaching an order to a product customer

1. Period cost: (manufacturing cost)

MOH has 3 different names also.

(1) Predicting cost behaviour in response to change activity:

Per unit variable cost fixed

Variable Cost (Per Unit) Fixed Cost (Per Unit)

(2) Assigning cost to cost object:

Direct Cost  Raw Material

Total Quality Cost

Cost of Internal & External Failure

In a problem we could ask to determine 3 things. Those are given below:

1) Schedule Cost of Goods Manufacture

 Right column: total sum

Costs of Goods Sold

Costs of Goods Sold

Cost Behaviour: Analysis & Use

TRUE Variable Cost STEP Variable Cost

(1) Committed Fixed Cost:

Total Cost = Fixed Cost + Variable Cost

1. Scattered graph plot

Month Activity Level Maintenance Cost

January 5600 $7900

Find out cost formula.

9800 Reference Point Y = 9800

a 6000 Email: seahhridoy@gmail.com

Variable cost = = = 0.8

Per unit (b)

 9800 = a + 0.8 x 8000

30475000 45700 58700 388080000

Example: Speaker Manufacturer

Sales (350 units) $87500

Per Unit  %Sales 

1. Change in fixed cost and sales volume:

Sales (520 units) $ 130,000

So, if sales increases in this way then NOI increases

Another Method: (what is the sales quality is not necessary to know)

Incremental C.M.  30,000 x 40% = 12,000

2. Change in Fixed cost, Sales Price & Sales volume:

Alternative Solution: $ 230

Present total CM  400 x 100 = 40,000

Fixed Cost ↑ , Sales Price ↓ ; Sales Volume ↑ then NOI ↓

3. Change in variable cost, change in fixed cost & sales volume:

Variable cost $15 will increase

Sales (460 units) $115000

Less fixed expense  -(-6000) = $ 6000

Break Even Analysis:

Sales = V.E. + F.E. + Profit

BEP points in total sales dollars = = = $87500 ( )

Sales 75000 80000 100000 150000 225000

(-) VE 45000 48000 60000 90000 135000

CM 30000 32000 40000 60000 90000

(-)FE 30000 30000 30000 30000 30000

NOI 0 2000 10000 30000 60000

DOF 0.L=infinite 16 4 2 1.5

Structuring Sales Commissions

Sales mix & BEP analysis: