Ba 215 notes #2
Ba 215 notes #2 201
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39 p 7 r Ex quotHfquottwill aquot FL 1 v v I f if I 5quot t KID 139 E N g I vi 1 J q nJ N 393 a 39 quot L 74 harm grin Vquot i HQVWW3 gnaw lt N BA 215 Nov 24th I will not be taking your notes this wednesday because I am going out of town for Thanksgiving break There will most likely be someone filling in for me and they will let you know Have a good break Two homework sets due tonight 10 amp 11 Another due next monday Q C ues ons hapter 11 problem 8 Break even analysis 40 each 8000 books to break even 40000 investment 40000 fixed cost 40000 x 8000 o 40 y 5 Variable cost is C and solve for x solve for y 35 hapter 11 problem 9 Sales Mix E is the blending of the two items together made up Game Players UCM 10 x 65 65 Tablets UCM 100 x 35 35 UCM 4150 E o a Unit costs is 664 mill 4150 160000 b GP 160000 x 65 C Tab 160000 X 35 hapter 11 problem 10 Margin of Safety a 1 4375000 2500000 Sales current sales break even lourrent sales deoimal x 100 for a peroent30 2 VC 75 of sales FC 28 mil Sales 25x 25 28mil 25 o x 112 mil is our sales at break even b p age 13 6 35000 14660unit 8631000 lt sales FC 36 mill 1 1686 mill TFC 3381000 VC TVC total VC per unit 3864 mill 400000 units 966 per unit x 35000 units 3381 mill 162481 mill Chapter 12 Differential analysis and Product pricing Diff analysis 5 steps Looks at the effects of diff alternatives Uses estimated revenues and costs Focuses on relevant revenues and costs Ignores sunk costs those costs that have occurred in the past and are irrelevant for future decision making Differential analysis in 6 situations Leasing or selling equipment Discontinuing an unprofitable segment Manufacturing or purchasing a needed part Replacing fixed assets Processing further or selling an intermediate product Accepting additional business at a special price Lease or sell Two alternatives lease the equipment in repairs taxes etc Replace Equipment what will it cost me if i keep it what will it cost me if i buy new stuff instead Ignore that book value look at cost for next period new machines N BA 215 Nov 24th I will not be taking your notes this wednesday because I am going out of town for Thanksgiving break There will most likely be someone filling in for me and they will let you know Have a good break Two homework sets due tonight 10 amp 11 Another due next monday Q C ues ons hapter 11 problem 8 Break even analysis 40 each 8000 books to break even 40000 investment 40000 fixed cost 40000 x 8000 o 40 y 5 Variable cost is C and solve for x solve for y 35 hapter 11 problem 9 Sales Mix E is the blending of the two items together made up Game Players UCM 10 x 65 65 Tablets UCM 100 x 35 35 UCM 4150 E o a Unit costs is 664 mill 4150 160000 b GP 160000 x 65 C Tab 160000 X 35 hapter 11 problem 10 Margin of Safety a 1 4375000 2500000 Sales current sales break even lourrent sales deoimal x 100 for a peroent30 2 VC 75 of sales FC 28 mil Sales 25x 25 28mil 25 o x 112 mil is our sales at break even b p age 13 6 35000 14660unit 8631000 lt sales FC 36 mill 1 1686 mill TFC 3381000 VC TVC total VC per unit 3864 mill 400000 units 966 per unit x 35000 units 3381 mill 162481 mill Chapter 12 Differential analysis and Product pricing Diff analysis 5 steps Looks at the effects of diff alternatives Uses estimated revenues and costs Focuses on relevant revenues and costs Ignores sunk costs those costs that have occurred in the past and are irrelevant for future decision making Differential analysis in 6 situations Leasing or selling equipment Discontinuing an unprofitable segment Manufacturing or purchasing a needed part Replacing fixed assets Processing further or selling an intermediate product Accepting additional business at a special price Lease or sell Two alternatives lease the equipment in repairs taxes etc Replace Equipment what will it cost me if i keep it what will it cost me if i buy new stuff instead Ignore that book value look at cost for next period new machines N BA 215 Nov 24th I will not be taking your notes this wednesday because I am going out of town for Thanksgiving break There will most likely be someone filling in for me and they will let you know Have a good break Two homework sets due tonight 10 amp 11 Another due next monday Q C ues ons hapter 11 problem 8 Break even analysis 40 each 8000 books to break even 40000 investment 40000 fixed cost 40000 x 8000 o 40 y 5 Variable cost is C and solve for x solve for y 35 hapter 11 problem 9 Sales Mix E is the blending of the two items together made up Game Players UCM 10 x 65 65 Tablets UCM 100 x 35 35 UCM 4150 E o a Unit costs is 664 mill 4150 160000 b GP 160000 x 65 C Tab 160000 X 35 hapter 11 problem 10 Margin of Safety a 1 4375000 2500000 Sales current sales break even lourrent sales deoimal x 100 for a peroent30 2 VC 75 of sales FC 28 mil Sales 25x 25 28mil 25 o x 112 mil is our sales at break even b p age 13 6 35000 14660unit 8631000 lt sales FC 36 mill 1 1686 mill TFC 3381000 VC TVC total VC per unit 3864 mill 400000 units 966 per unit x 35000 units 3381 mill 162481 mill Chapter 12 Differential analysis and Product pricing Diff analysis 5 steps Looks at the effects of diff alternatives Uses estimated revenues and costs Focuses on relevant revenues and costs Ignores sunk costs those costs that have occurred in the past and are irrelevant for future decision making Differential analysis in 6 situations Leasing or selling equipment Discontinuing an unprofitable segment Manufacturing or purchasing a needed part Replacing fixed assets Processing further or selling an intermediate product Accepting additional business at a special price Lease or sell Two alternatives lease the equipment in repairs taxes etc Replace Equipment what will it cost me if i keep it what will it cost me if i buy new stuff instead Ignore that book value look at cost for next period new machines BA 215 Nov 19th Chapter 10 Product oriented layout manufacturing process organized around product Process oriented layout manufacturing process organized around process Emphasizing employee involvement grants employees responsibility and authority to make decisions Employees are often cross trained to perform any operation within a product cell employee out sick emergency if they are cross trained they can fill that job with another employee Pull manufacturing products manufactured only as they are needed by the customer Zero Defects eliminate poor quality Six sigma approach to zero defects ultimate goal Six sigma define measure analyze improve control Emphasizing supply chain management creating stronger ties between customers and vendors Reduces the flexibility of the manufacturers Able to get their things much sooner Electronic data interchange Radio frequency identification devices Enterprise resource planning Activity Based Costing ABC Uses multiple overhead rates to allocate factory overhead more accurately than using a single plantwide rate Costs are initially accounted for in cost pools each cost pool has its own rate ABC above Admission Radiological Testing Operating Room Pathological Testing Dietary and Laundry Overhead Allocation Using Activity Based Costing example on slide Chapter 11 Cost Behavior refers to the manner in which a cost changes as a related activity changes Can be variable fixed or mixed Two factors to consider activity bases activities that causes a cost to change AND Relevant range changes in cost are of interest Variable Costs Costs that vary in proportion to changes in the activity level Normally activity base is units produced direct materials and direct labor costs Fixed Costs costs that remain the same in total over the relevant range of activity but changes per unit with the level of activity Mixed Costs share characteristics of both a variable and a fixed cost fixed over a range then increasing based on activity semivariable or semifixed costs Variable cost per unit diff in total cost diff in production Cost volume profit analysis the systematic examination of the relationships among selling prices sales and production volume costs expenses and profits Provides management with useful info for decision making Contribution Margin Identifies revenues available to cover fixed costs and to provide income from operations Contribution margin ratio of each sales dollar dollar cut into a 60 40 ratio Unit Contribution Margin useful when an increasedecrease in sales volume is measured in units not dollars Dividing by the of units Sales price per unit variable costs per unit Break even sales units fixed costs UCM Unit Variable Costs there is a direct relationship between unit variable costs and break even units Sales Mix when calculating Unit selling price unit variable cost unit contribution margin Product E is a theoretical product not real they re saying they want 80 of A and 20 of B Weight it by the amount they are telling you Product A 8000 x 80 6400 units Product B 8000 x 20 1600 units Operating Leverage companies with high fixed costs capital intensive have high operating leverage Companies with low fixed costs labor intensive have low operating leverage Managers use operating leverage to measure how changes in sales affect changes in income from operations The relative mix of variable and fixed costs is measure by operating leverage Margin of safety measures how much sales revenue can drop before an operating cost occurs sales sales at break even point sales BA 215 Dec 1st Chapter 12 and quiz 3 due tonight Chapter 5 Internal control cash SarbanesOxley Sarbanes Oxley act passed in response to financial scandals in early 2000 s The point of the legislation was to restore public confidence and trust in the financial reporting of publicly traded companies memorize this Objectives of internal control safeguarded assets accurate info compliance with laws and regulations Elements of internal control control environment assess the risks control procedures monitoring info and communication Control Environment managements philosophy and operating style the companies organizational structure the companies personnel policies Control procedures is one of the most important elements of internal control Competent personnel rotate duties around and mandatory vacations separating responsibilities for related operations separating operations custody of assets and accoun ng Monitoring locates weaknesses and improves control effectiveness Limitations of internal control human elements cost benefit of system Budgeting a budget is a financial plan for a business Planning directing controlling feedback Human behavior and budgeting budgets set too tightly discourage employees when expectations are too high Budgets set too loosely lead to budgetary slack called padding the budget Goal conflict occurs when the employees or managers self interest differs from the companies objectives or goals Continuous budgets maintain a 12 month Zero based budgeting requires managers to estimate sales production and other data as though operations are being started for the first time More common methods involve revising last years budget Computerized budgeting systems speeds up and reduces the cost of preparing the budget Allows various operating alternatives to be easily assessed Enables the company to tie all budgets together Master budget is an integrated set of operating investing and financing budgets for a period of time Standards standard costs should be periodically reviewed to ensure current operating conditions are reflected Criticisms limit operating improvements beyond the standard too difficult to maintain in a dynamic manufacturing environment can cause employees to lose sight of larger objectives and unduly focus on their own operations Non financial performance measures input activityprocess output 2 Sales Volume ending inv beg inv current production budget A L E Cash flow gets effected Operating Income statement Net income 4 Restore public confidence and trust in the financial statements in publicly traded companies 5 UCM bottleneck hour Maximize your unit contribution per bottleneck hour 6 Production level of 5000 units 30000 in fixed costs variable costs of 20000 Fixed costs will be the same variable costs calculate per unit multiply by new of units 7 doubtful accts of 25000 beg ADA bal of 2000 adjustment 23000 end balance 25000 expense by 23000 8 direct materials direct labor overhead product costs or manufacturing costs factory is a product cost NOT A PRODUCT COST sales selling office 9 SellingReplacing revenue from seling cost at new level Purchasing equipment Keep Costs as is Diff in total of years 10 which product more profitable M what we were talking about before on 5 Calculate contribution margin per bottleneck hour Price VC hours 11 change in operating income sales decrease VC as of sales Sales 1000000 in sales VC are 75 of sales 1 osales 25 250000 100000 150000 Sales decrease x contribution margin o1VC o change income 12 Cost behav definition Production level activity level all the same 13 similar to homework problem in chapter 13 cash collection Portion of the sales is going to be cash and a portion credit Sales 1000000 40 is cash 400000 60 on accountcredit 600000 Sales figure for each month Cash in January1 m of 400k Cash in February2m of 800k Cash in march1m of 400k Do credit evaluation but do it off to the side Estimating direct labor hours per month Production budget Beg lnv Desired Ending lnv Sales Value Labor rate of hours Calculate of direct labor hours Expected SV desired lnv Beg lnv of units to produce of units to produce x of hours produce for each total hrs expected 16 definition of depreciation expend and show estimated amount of equipment being used up over the life of the equipment 17 Direct labor direct labor gets recorded under WPwork in process increase liability wages payable 18 Activity base 19 take low of units and subtract it from high of units 22 Resources of a business owns assets 23 Prime costs direct materials and direct labor 24 Margin of safety current sales sales at break even 25 activity changes variable costs 26 production budget 27 sales budget 28 3 objectives safe guard assets accurate information compliance with laws 29 Capital expenditures 30 Est Total Overhead 1 M Est total hours 100000 Actual overhead 2M Actual hours 150000 calculate over under applied hrs per hour Est rate x hours 15M UNDER APPLIED take actual applied difference if it is over applied if it is under applied BA 215 November 17th In the book it has this ratio wrong Rate Earned on total Assets Net income Interest Avg Total Assets Grades for the midterm are up Land Problem may have been graded incorrectly Vl Q42 V1 Q43 CENGAGE Rate on SE NI 364000 Avg Total SE 1050000 731000 2 40875 Rate on common SE NI 364k Preferred Div 5k Avg Common SE 950k 63k 2 4514 EPS common NI Preferred shares 364k 5k 359000 50k Chapters 10 amp 11 due on Monday Finished goods inventory completed jobs that have not been sold Overhead bucket will contain multiple different things As they occur will be tossed there It is the last thing that gets supplied for these Once the job gets completed now you can apply the overhead Materials Accounting for the purchase of materials on credit Reouisitionind Materials flow of materials from the storeroom to production Have to remove it from the materials under assets then goes to work in process under assets Moves into the second inventory type Materials Cost Flows labor information and cost flows time tickets for Quixote Guitars Direct Labor Cost Flows Labor info and cost flows time tickets for Quixote guitars Factorv Labor Two primary objectives of time tickets 1 Determine the correct amount to pay each employee for each pay period 2 Properly allocate factory labor costs to factory overhead and individual job orders Factorv overhead cost Includes all manufacturing costs other than direct materials and direct labor Comes from various sources including factory depreciation indirect materials indirect labor and factory utilities Insurance cost water costs etc o If you see materials being reduced it is going into factory overhead Allocatind Factorv Overhead Overhead gets assigned to jobs through cost allocation The measure used to allocate overhead is called activity base Should be a measure that reflects the consumption or use of overhead Examples direct labor hours machine hours or direct material dollars If the main thing that gets chewed up is labor hours then you want to use the most appropriate numbers for that item to allocate overhead per machine hour estimate Predetermined Factorv Overhead Rate Rate at which factory overhead costs are normally allocated or applied to jobs Predetermined Factory overhead rate estimated total factory overhead costs estimated activity base this is whatever is appropriate for the situation ie labor hours or machine hours Actual Overhead Vs Applied Overhead Actual factory overhead costs incurred will likely differ from the amount applied Over applied overhead occurs when the amount applied exceeds actual costs Under applied overhead occurs when the amount applied is less than actual costs Large under over applied balances need to be investigated Over applied means overhead will be decreased negative Under applied means overhead will still be a positive Work in Process Costs incurred for various jobs are accumulated on job cost sheets and they represent work in process Completion of Job 71 c When job 71 was completed total manufacturing costs were transferred out of the work in process account and into the finished goods account Finished goods ledger for Quixote guitars finished goods is a controlling account comprised of individual Sales and COGS Manufacturing business sales are treated the same as merchandising business sales Record sale and inventory effect Recognize the revenue and cost portion Period Costs Costs used in generating revenue during the current period Not involved in the manufacturing process All about selling and administrative costs LEARNING OBJECTIVE 6 Summarv of cost CllOWS for Quixote Guitars look in book at this picture and learn it for the final Cost Evaluation and Control Job order cost systems can be used to evaluate an organization s cost performance Example Job 63 used 100 more board feet of wood to manufacture the same number of guitars Why Look into it Who worked on this job Where were the issues happening etc Job order costind for decision makind Possible reasons for the extra use of materials for Job 63 olnexpenencedlabor Poor quality materials Cutting tools needed repair Incorrect instructions Job order cost svstems for service businesses Useful for planning and controlling operations Primary product costs are direct labor and overhead costs They are accumulated in a work in process account When jobs are completed the cost of the job is transferred to cost of services account similar to COGS Just in time practices Manufacturing approaching are changing as companies need to produce products with high quality low cost and instant availability Focuses on reducing time cost and eliminating poor quality within manufacturing processes Also called lean manufacturing Reducind inventorv As the water level inventory in the river drops the rocks production problems become visible Lead time how long does it take to start with raw materials go through manufacturing process and have a product Reducind Setuo Time makes more sense sometimes to not produce a product for each individual but have inventory of a bunch of the products ready brown bags cloud bags white bags BA215 November 12th Midterm tonight Tossed a couple tough study guide questions because even she had a difficult time answering them You re grade will not go down if anything it will go up Review of the study guide 9 Calculate the days sales in inventory on back of test will be the ratio page can rip it off and have it on the side Avg lnv Avg daily COGS how do you calculate them both Avg COGS COGS 365 Avg lnv Beg lnv ending inv 2 o 10 Need to know that theres different time periods associated with this expense The point of having the expense is taking a look at the sales that they ve had for the current period how much is going to require warranty work The expense is in the current period and is an attempt to pair up revenue and expense in the same period Period of sale Current period 11 Which one of these is going to give us the largest COGS see question LIFO bc its the last stuff in and thats the stuff being sold so in a period of prices the last stuff in is the most expensive stuff So your COGS is the largest it can be 12 Calculate working capital see question Working capitol is CA CL Working Capital If your going to pay off you re going to affect both CA and CL Working capital measures the above and beyond difference between them you ve not changed the working capital itself So there is no change to it There is no difference between them it remains the same Whatever working capital was before it is after 13 First step calculating gain or loss on sale of an asset find the book value Cost Accum Depr Step two Take sales price book value If sales price exceeds book value you have a gain Positive sales price larger gain Negative sales price less loss 14 They are giving you Beginning ADA balance Net sales Percent of sales Use percent of sales method Is any of this info irrelevant Yes the beginning ADA Take x sales adjustment 15 Earnings per share Give you of common shares preferred stock dividends Nl Net income preferred dividends shares 16 Book value is computed 17 Allowance for doubtful accounts It s a contra asset account found under current assets in balance sheet 18 see question Ending lnv 1st purchased stock old stuff LIFO 19 Depreciation measures the amount used upentire cost that was purchased and splitting it over the useful life recognizing a portion of an asset cost over a useful life of the good 20 Weird situation Wouldn t pay interest when due What accounts would get effected lf were not going to pay the interest but we owe it we have an interest payable increased amp recognizing the expense hitting retained earnings We increase our interest expense and as expenses increase they decrease our retained earnings increase a liability increase your expense Increase interest payable and interest expense which decreases retained earnings ALE 21 o If you have an expenditure the point at which we capitalize an expense if it going to create a whole new utility or asset or multiple periods of time Capital expenditure turn it into an asset cost Declaring a dividend we now have a liability Calculate amount of cash received in the book Take 102 x face value what the issuance was how much cash you got of days sales in accounts receivable Given Net sales COGS Beg AR Ending AR Beg lnv End lnv Avg AR Avg Daily Sales Calculate Avg AR Beg ending 2 Calculate average Daily sales net sales 365 Receivable thats over multiple years is called investment Contract interest rate on a bond bond rate is lower than market rate Selling at a premium or discount DISCOUNT Market Rate gt Bond Contract Rate Solvency ability pay debts Profitability Ability to earn income Depreciable Cost Associated with Straightline depreciation It is cost that you paid residual value Avg Cost method Beginning value 3 items at 2 a piece purchase 1 10 items at 2 a piece purchase 2 2 items at 2 a piece 3x26 2x1020 2x24 Calculate each one of these out and find total dollar value of it all 30 How many items did we get for that 15 items So 30 15 2 average cost How many is left in stock Take average cost x left in stock 8 Primary purpose of stock split Reduce the market price per share 33 Major subdivisions Retained Earnings Capital Stock Paid in Capital breakdown between common and preferred stock amp treasury Similar to 33 M Find financial equity on balance sheet Need to know they are located on balance sheet Calculate LIFO Looking for inventory Whats selling is the LAST stuff So when thats all gone you re going to sell the second oldest stuff Look at how many pieces you have ex 5 pieces left in inventory go to oldest stuff first and see you have 3 left And the next you see there are 2 left 38 39 Purchase at the start of the year so full year depreciation Cost Residual Value of years useful life Whats the book value Cost Accum Depr Book value for first year is our cost 1000 4 years of useful life in this case 1 useful life x 2 quot0 of analysis of increases and decreases on comparative financial statements Your doing horizontal When your comparing from one year to the next horizontal analysis of it Liabilities repaid in more than a year long term liability Calculate accounts receivable turnover Will give you a bunch of extra stuff make sure to pick the right stuff 40 o All components of an income statement are expressed see question VERTICAL the word analysis is either vertical or horizontal 41 see question of shares Par Value Stock split ratio Asking what is the of shares outstanding after the stock split Par Value ignore it o If the ration is 2 1 that means the of shares outstanding is doubled if its 5 1 its x5 etc etc 42 Calculate Value of land it given see question Don t need to include in value of land Specific of days 90 in this case Face value of a note 5000 Interest rate 3 interest How do we calculate maturity value of the note Notes payable calculates the same as this Take 03 x 90 360 x face value 1000 interest s Maturity face interest s How is good will treated as it gets used up it is not amortized it is a direct write off but only if it becomes impaired expense 45 Bad debt expense Expense is the adjustment but using receivable analysis method Beg ADA Est Bad Debt represents the ending ADA account 46 o of times interest charges are earned Income before income taxes lBlT Interest Interest issuing common stock Par Value 2 per stock of shares sold Sales price Paid in capital 8 per stock Cash goes up by price x shares sold Common stock goes up by the Par value x shares Add PIC goes up by per item x of shares Par additional paid in capital cash 48 Calculate inventory turnover COGS Avg Inventory beg ending value 2 Ignore the extra stuff 49 Which Inventory costing method is it where you assume its sold in order its purchased FIFO 50 2 overall methods for uncollectible receivables 1 Direct write off 2 Allowance for doubtful accounts BA November 10th Chapter 9 question 7 on the homework e and f distinguishing stockholders equity Net income average total SE Rate on SE Net income preferred dividends average common SE Rate pm Common SE The problem says the net income amount is 725000 Stock holders equity is retained earnings common stock preferred stock Add all those up and divide by 2 That will give you a decimal but the problem is asking you for a quot0 So multiply the decimal by 100 Beginning 500000 amp Ending 500000 common stock Beginning is 6525000 The actual ending is 6900000 Add all of these together divide by 2 and you ll get SE besides preferred stock Net sales Average total assets LT investments Beginning assets long term investments Ending assets LT investments Rate earned on total assets Net income interest expense Average total assets 725000 400000 Avg Total assets Homework due tonight MIDTERM 2 Questions on the study guide 1 Using of lower of cost or market which is lower Take of items and for the item you have a market value replacement value 2 Issued valueface value NP for 1000 Maturity value will face value the issue on this note Calculate interest interest rate 05 360 x of days90 x face s of interest Maturity Face interest 3 How much do you expect to collect Whats leftover once you remove the bad portion is your net realizable value of your receivables 4 Calculating inventory using FIFO first in first out Beginning inventory purchase 1 purchase 2 Most likely to be left in inventory at end of month purchase 2 10 items purchased 5 left 3 x 5 items 15 FIFO you d go to the last stuff for your inventory 5 You re going to RECEIVE money so it goes to asset section 90 days is lt a year so it goes under current assets 6 Listed some intangible assets that you will need to know patent good will trademark copy wright 7 Annual depreciation using a straight lined method first thing to calculate is purchase pricecost Residual Value Depreciable Cost of years Good will 44 on study guide intangible asset but not treated like others There is no specific legal life associated with it If we see it is impaired we have to write good will down It is literally what did you pay thats in excess of assets and liabilities A L E Consistent quality issues means their sales will go down and won t be making as much If good will s value has gone down you have to do a direct write off Written off E it becomes impaired Does NOT get amortized ever Chapter 10 Accounting Systems for Manufacturing Businesses WlP work in progressprocess Managerial Accounting focuses on recording and reporting information for use by a company s management in decision making What should be the selling price of product Which alternative should be company choose What is the cost of manufacturing Business activities service firms earn revenue from providing services merchandise firms earn revenue from selling merchandise inventory manufacturing firms earn revenue from making and selling goods Manufacturing Costs costs can provide an immediate benefit or a benefit that is deferred to future periods customer places order materials labor costs cutting function assembly function finished product Materials direct and indirect Labor direct and indirect Ex office supervisor goes in different category Product costs what does it take to manufacture your product direct materials direct labor factory overhead Period costs consist of selling and administrative expenses Job Order Cost System provides product costs for each quantity of product manufactured Used for custom products or companies with a large variety of products Service firms often use job order systems Process Cost system provides product costs for each manufacturing department or process Used for products that are not very distinguishable from each other Materials inventory costs of the direct and indirect materials have not yet entered the manufacturing process BA 215 November 5th warranties are treated similar to allowance for doubtful accounts Monday chapter 8 amp 9 homework and quiz 2 due Chapter 9 homework Y801 375 Life 12 years Residual value 45k Depreciation for years 123 Assume January 1st of 2001 So full year of depreciation d Sell it on Jan 7th but assume Jan 1st of 2004 sold for 300k In this case whats the book value compare it against sales price The book value you calculate based on accumulated depreciation cost acc depr in this problem we have 3 years accumulated depreciation To get Accumulated Depreciation Cost Residual x 312 Find if sold more than book value Final chapter that s going to be on this midterm Study guide will most likely be sent out tonight Final will be cumulative but weighted towards the last chapters Financial Statement Analysis Chapter 9 Horizontal analysis the percentage analysis of increases and decreases in related items in comparative financial statements Each item on the most recent statement is compared with the related item on one or more earlier statements in terms of the following 1 Amount of increase or decrease 2 Percent of increase or decrease Vertical Analysis Compare 6 within itself and 5 within itself example A percentage analysis used to show the relationship of each components to a total within a single statement Benefits of Analysis Horizontal and Vertical analysis are useful in assessing relationships and trends in financial conditions and operations of a business Vertical is useful for comparing one company with another or with industry averages Vertical analysis is made easier with common sized financial statements Commonsized income statement all items are expressed as percentages with no dollar amounts shown example Liquidity the ability of a business to convert assets into cash Solvency the ability of a business to pay its debts liquidity solvency and profitability are interrelated Solvency analysis current position analysis accounts receivable analysis inventory analysis ratio of fixed assets to long term liabilitiesratio of liabilities to stockholders equity of times interest charges are earned Current position analysis can be found in book using measures to assess a business ability to pay its current liabilities Working capital current assets current liabilities Current ratio current assets current liabilities Quick Ratio quick assetsassets that are easy to turn over current liabilities Accounts receivable turnover net sales average accounts receivable Number of days sales in receivables average accounts receivable net sales365 Net sales sales discounts and sales returns against overall sales Average accounts receivable beginning balance and ending balance added together and divided by 2 Financial analysis project problem 94 in the book Pay attention to round you initial calculation to a whole final value round to at least 1 decimal place Inventory turnover cost of goods sold average inventory number of days sales in inventory average inventory average daily cost of goods sold Fixed assets to long term liabilities fixed liabilities to stockholders equity total liabilities total stock holders equity of times interest charges are earned indicates the general financial strength of the business Income before taxesinterest expense interest expense Profitability analysis ratio of net sales to assets ratio earned on total assets rate earned on stockholders equity rate earned on common stockholders equity earnings per share on common stock price earnings ratio dividends per share dividend yield Ratio of net sales to assets shows how effectively a firm utilizes its assets net sales avg total assets excluding LT investments To leverage means to utilize debt not equity can sometimes get a bigger return Rate earned on common stockholders equity net income preferred dividends avg common stockholders equity Earnings per share on common stock net income preferred dividends common shares outstanding PriceEarnings PE ratio market price per share of common stock earnings per share on common stock Annual reports financial statement blah blah blah her words internal control BA 215 November 3rd Chapter 6 and 7 due tonight Questions 1 First in first out selling the stuff that came in first Once that s gone work your way down You need to look at most recent purchase first the one on the bottom which is 112 units on this problem and you now have 90 left All 90 will be at 1650 a piece Take 90 x 1650 and that will be inventory for first in first out For last in first out you do the opposite Look at the units that have been sitting there the longest 54 units with 90 left 108 units and 90 left 905436 so 36 of the 108 is the remaining inventory of 90 Average cost method 54 x1200 108 x 1380 etc and add them all together to find the total value of inventory and divide it by the total of units 5 Same thing as 1 but set up in a different way Same thing with first in first out last in last out average but do it with every one of these values She said to set up a spread sheet to solve Double declining balance first calculate the rate and thats 2x the straight line rate 1 divided by of years x 2 DDRate Cost s paid for year 1 Accumulated Depreciation 0 in year 1 Book Value pd x DDR Depreciation Expense for the year For year two the accumulated depreciation changes to the expense from year 1 Your DDR stays the same the whole time 9 What to put under the equipment The only thing that will change is accumulated depreciation the cost of equipment will never fluctuate 10 2 For number one you are assigning something to each And take the ones in the list that are land and add them up to get the value you are looking for extension of water main to the property is a tricky one 7 Double declining balance Asking you for year 1 2005 and year 1 is 42000 0 x 20 yearly depreciation Expense 8400 12x3 2100 Quiz 2 same format and rules as quiz 1 This quiz is worth more points this is 35 points Do chapter 8 and 9 homework beforehand Next week is midterm 2 it will focus on the things learned after midterm 1 iabilitie and Stock hold Equity Financing Operations Businesses must finance operations through one of the two ways Debt financing includes all liabilities owed by a business Equity Financing includes investments from owners of the business Liabilities Debt owed to others Current liabilities due within a short time usually 1 year Longterm liabilities due beyond 1 year Contingent liability in some cases a company incurs a liability if certain events occur in the future Notes Payable Often issued to Satisfy an account payable weren t able to get it paid off in the time expected Purchase merchandise or other assets Borrower Issuer of the note like an IOU Lender party receiving the note extending that credit to borrower Example on slide A L SE Issues 90day 6 note for 1000 dated August 1 to satisfy an account payable 1000 x 06 360 x 90 Notes payable itself doesn t show up on the books Income Taxes Include federal income taxes and possibly state and local income taxes Most corporations are required to pay federal income taxes in four installments throughout the year Taxable income of a corporation is determined according to the tax laws Income before taxes reported on the income statement is usually different from taxable income Income before taxes is going to be different than what your taxable income is Assume that a corporation with a calendar year accounting period estimates its income tax expense for the year as 84000 In this case its financial statement driven They may or may not make estimated payments They don t recognize a liability Taxable income vs Income before Taxes Taxable income determined according to federal tax laws Income before Taxes determined according to generally accepted accounting principles Differences between the two may need to be allocated between various financial statement periods Temporary Differences Example of depreciation with it we can recognize a certain value during the years The ultimate thing is everything ends up getting expensed Accounting for it 120000 40000 80000 Contingent Liabilities Contingency 1 Likelihood of occurring probable reasonably possible remote 2 Measurement If Probable gt Estimable Not Estimable 3 Accounting Treatment If Estimablenot estimablegtRecordampDisclose Expense and Liability Disclose liability If reasonably possiblegt disclose liability If Remote gt None Payroll Amount paid to employees for services they provide during a period Salary payment for managerial administrative or similar services Wages payment for manual labor both skilled and unskilled Payroll and related taxes significantly impact the net income of most businesses Payroll Taxes Employer Taxes FICA Employee taxes FICA Payroll taxes become a liability when the related payroll is paid to employees Bonds way for a company to raise cash Basically a debt a company is creating A form of interestbaring note Bonds include interest that must be paid on a regular basis Bonds face value must be repaid at maturity Bond indenture Contract between the company issuing the bonds and the bondholders A bond issue is normally divided into several individual bonds The most common face value is 1000 per bond Maturity value face value 1 face value in future 2 interest payments along the way Calculating Bond Issue Price The price that buyers are willing to pay for the bonds depends on three factors 1 Face amount etc on slide Interest rate always expressed in a yearly term Stock Certain of shares that you want to be able to issue Authorized total allowed to issue Shares of stock can be issued with or without assigning a monetary amount Par monetary value stated on stock certificate Nopar some states might require a stated value LegalcapHal Minimum stockholder contribution required by some states Stock rights Right to vote in matters concerning the corporation Right to share in distributions of earnings Right to share in assets on liquidation Common and Preferred Stock Common each share has equal rights each share has voting rights Preferred has preference rights over common stock dividend rights stated in monetary terms or as quot0 of par Issuance of stock the price at which stock sells depends on variety of factors financial condition investor expectations general business Reacquired Stock Treasury stock issued then reacquired Dividends stock dividends when a board of directors authorize the distribution Dates in dividend Announcement Date of declaration date of record date of payment BA 215 Oct 27th Homework 3 Uncollectable receivables using the allowance method Received 8000 on account AR 40000 40000 32000 ADA 32000 32000 RE 40000 Cash 8000 32000 AR 18 mill SALES 216 mill Calculate adjusting entry 125000 ADA 20000 C ADA 18000 0075 sales x 0075 adjustment D ADA 18000 but needs to be 130000 so the adjustment entry is 148000 6 65 mil 40k Bad debt NE 590k what would the net income would have been if 590k 40k 630000NE before bad debt 175100 0175 x 65 mil bad debt expense recognized 7 1Not passed due o s Total s The answer is the percentages multiplied by the total s 2 ADA 3500 subtract the beginning value from the ending value to get the adjustment Tonight chapter 6 homework due And next monday homework due Chapter 6 Inventory Merchandise Inventory expected to be used up within the year Classification on balance sheet is Current asset Always the inventory that is on hand When it is sold it is COGS When inventory is decreased the RE is COGSexpense under it Includes the cost of the merchandise and adding the freight cost and subtracting any discounts or returns under INV Manufacturing Inventory 1 Materials Raw Materials 2 WIP Work In ProcessProgress Raw materials laborgt partially completed wip oh 3 Finished Goods materials labors OH overhead When your looking at a balance sheet for a manufacturing company they will have an that says see footnote and at the very end they will have disclosures And under that they will give the various pieces and the value of it Total Inventories 815863 and at the very end they will show materials work in process finished goods Valuing inventory accounts 1 FIFO first in first out 2 LIFO last in first out 3 Average Cost FIFO Rising Old cheap New more expensive LIFO opposite of FIFO small inventory value expense is large net income is smaller Average Cost Cogs 12 Inventory Value 24 It s possible that inventory homework due next monday may throw you off She says students get tripped up on it send her emails Damaged goods Original cost 1000 Estimated Sell Price 800 Estimated Selling Expenses 150 Net realizable value 800 150 650 Damaged merchandise record net realizable value Use the lower of cost or market to value this pick which one is less money look at list for each separate item which is lower your cost or what you can sell it for thats what market value is When the lower of cost or market LCM is going to be applied 1 each item in inventory 2 each major class of inventory 3 the total inventory
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