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Managerial Accounting Week 1 - Professor Olliff

by: Chandler Maxwell

Managerial Accounting Week 1 - Professor Olliff ACCT 2102 B

Marketplace > Georgia Southern University > Managerial Accounting > ACCT 2102 B > Managerial Accounting Week 1 Professor Olliff
Chandler Maxwell
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About this Document

This note packet includes information covered during syllabus day and the following two days. We discussed Product and Period Costs, Cost Behavior, Fixed and Variable Costs, and the Hi-Low Method.
Accounting II
Edie Olliff
Class Notes
Accounting, Managerial




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This 4 page Class Notes was uploaded by Chandler Maxwell on Monday August 15, 2016. The Class Notes belongs to ACCT 2102 B at Georgia Southern University taught by Edie Olliff in Fall 2016. Since its upload, it has received 33 views. For similar materials see Accounting II in Managerial Accounting at Georgia Southern University.


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Date Created: 08/15/16
Managerial Accounting Week 1 Notes Purpose of this Course: to calculate the cost of manufacturing a product.  Product Cost: o Materials: all materials in the product that can be easily identified and quantified. o Direct Labor: people who directly build/assemble the product in question o Manufacturing Overhead: includes plant operating costs  Examples being cost of building rent, depreciation expense on equipment, Utilities expenses, etc…  Also under Manufacturing Overhead we include Non- Quantifiable materials (indirect materials). o Indirect Materials: includes non-quantifiable product ingredients and non-product materials. o Indirect Labor: all labor costs not directly involved in product assembly. (also included under Manufacturing Overhead)  Examples include, plant secretaries, bookkeepers, managers, and janitors.  Period Costs: do not occur in the production plant. These are costs associated with receiving and executing orders for products. o Selling Expenses: includes shipping, marketing, packaging (outside of production plant), and salesmen’s salaries. o Administrative Expenses: executive’s salaries Product Costs: are considered inventorial costs because they/re added to inventory. o Inventorial Costs: as these costs are incurred, they are added to inventory Manufacturing Inventory Accounts o Raw Materials Inventory  Goods used during production process (includes direct & indirect materials) o Work-In-Progress Inventory  Inventory that is currently undergoing the assembly or manufacturing process (only direct materials are included here. Indirect materials are entered under manufacturing overhead.) o Finished Goods Inventory  Completed product. Products don’t leave this account until they’re sold. (upon sale the amount becomes “Costs of Goods Sold” Period Costs: expensed as they are incurred. Example: Advertising Expense ~~~~~~~~~ Cash ~~~~~~~~~ Remember that indirect product costs are journalized as Manufacturing O/H. Eventually moved to WIP Inventory Cost Behavior: refers to how costs behave when volume changes  Variable Costs o Volume and Costs move in direct proportion o Cost Per Unit is always the same  Fixed Cost o As Volume goes Up and Down, Cost will stay the Same o Cost Per Unit will change Mixed Cost Example: Water bill has a fixed minimum amount. However, there can be overage charges.  Mixed Costs have to be split into fixed and variable costs in order to be properly accounted for. To do this you can use the High-Low Method. Example Problem- Marriott Supply Cost Month Volume (Rooms Rented) Total Supply Cost August 2200 $67,440 September 3200 $86,800 October 4400 $100,880 November 2400 $73,200 Steps to Hi-Low Method 1. Find Your High Volume and the associated Cost a. October, 4400 Rooms Rented, $100,880 Total Costs 2. Find Your Low Volume and the associated Cost a. August, 2200 Rooms Rented, $67,440 Total Costs 3. Use the following formula to solve for your Variable Costs a. Change in Cost / Change in Volume = Variable Costs b. (100,880 - 67,440) / (4,400 – 2,200) = $15.20 per Room 4. Use your Low Volume Number (rooms rented in this case) to find your Total Variable Costs a. 2,200 * 15.20 = $33,440 Total Variable Cost 5. Then subtract your Total Variable Cost from the given Total Cost a. 67,440 – 33,440 = $34,000 Total Fixed Cost i. Total Fixed Cost does not change with Volume 6. You can check your work by doing steps 4 & 5 again with your Hi Volume numbers. Income Statement Traditional Format – used by 3 rdParties Sales $800,000 - Costs of Goods Sold 400,000 Gross Profit 360,000 - Operating Expenses Selling Expenses 180,000 Administrative Expenses 60,000 Net Operating Income $120,000 ** Selling Expenses Variable Costs = $160,000 Fixed Costs = $20,000 **Administration Expenses Variable Costs = $24,000 Fixed Costs = $36,000 Contribution Margin Format – used by Management Only Sales $800,000 - Variable Costs Costs of Goods Sold 440,000 Selling Expenses 160,000 Administrative Expenses 24,000 Contribution Margin 176,000 - Fixed Costs Selling Expenses 20,000 Administrative Expenses 36,000 Net Operating Income $120,000


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