Lecture Notes COM 110
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This 24 page Class Notes was uploaded by ec on Saturday August 29, 2015. The Class Notes belongs to COM 110 at University of Miami taught by Fan Yang in Summer 2015. Since its upload, it has received 52 views. For similar materials see Communication Theory in Communication Studies at University of Miami.
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Date Created: 08/29/15
Chapter 1 Managerial Accounting Financial Accounting Focuses on o Efficiency 0 Productivity 0 Quality 0 No set rules 0 Much more detail 0 No timelines as information is needed 0 Used for decisionmaking For internal users CEOPresident Focuses on Profitability 0 Solvency company survival 0 Liquidity assets to cash For external users creditors shareholders Chapter 2 0 Direct Costs costs that are easily traceable 0 Ex Salary of a supervisor in each department 0 Indirect Costs costs that are not easily traceable must allocate them 0 Ex Shared cost between all departments 0 Period Costs selling and administrative expenses 0 Reported on income statement as they are incurred 0 Product Costs cost of inventory 0 CURRENT ASSET in balance sheet until sold 0 Once sold becomes COST OF GOODS SOLD on income statement Product Cost for Retailer Product Price Freight Import Taxes Insurance While in Transit Product Cost for Manufacturer Direct Materials Direct Labor Manufacturing Overhead Direct Materials materials that will become part of the finished product Direct Labor cost of the assembly line workers Manufacturing Overhead indirect materials indirect labor other 0 Indirect Materials materials used at factory that do not become part of finished goods 0 Indirect Labor managers supervisors janitors security guards at the factory 0 Other utilities rent insurance depreciation at the factory 0 Three TVDes of Inventorv 1 Raw Materials Inventory direct materials not yet used 2 WorkinProcess Inventory items we started but have not finished 3 Finished Goods Inventory items that we finished but have not sold gt Once sold becomes COST OF GOODS SOLD Cost of Goods Sold Schedule Retailer Beginning Finished Goods Inventory Purchases Cost of Goods Available for Sale Ending Finished Goods Inventory Cost of Goods Sold Manufacturer Beginning Finished Goods Inventory Cost of Goods Available for Sale Ending Finished Goods Inventory Cost of Goods Sold Cost of Goods Manufactured Schedule 1 Direct Materials USED Beginning Direct Materials Inventory Direct Materials Purchased Direct Materials Available for Use Ending Direct Materials Inventory Direct Materials USED 2 Direct Labor Cost Assembly Line Workers Manufacturing Overhead Indirect Materials Indirect Labor Other 4 Total Manufacturing Costs for Period 1 2 3 Beginning WorkinProcess Inventory Cost of Goods Available to be finished Ending WorkinProcess InventorV Journal Entries 1 Purchase of Direct Materials DEBIT Raw Materials Inventory CREDIT Accounts Payable 2 Direct Materials USED DEBIT WorkinProcess Inventory CREDIT Raw Materials Inventory 3 Direct Labor DEBIT WorkinProcess Inventory CREDIT Cash or Wages Payable 4 Manufacturing Overhead DEBIT WorkinProcess Inventory CREDIT Various Accounts 5 Cost of Goods Manufactured DEBIT Finished Goods Inventory CREDIT WorkinProcess Inventory 6 Sale Revenue DEBIT Accounts Payable CREDIT Sales Revenue Cost of Goods Sold DEBIT Cost of Goods Sold CREDIT Finished Goods Inventory Chapter 3 Traditional Approach for Allocating Overhead 1 Calculate the Allocation Application Rate Estimated Manufacturing Overhead Allocation Rate Estimated Activity DL hours DL costs 2 Allocate Manufacturing Overhead Allocation Rate X Actual Activity Applied Manufacturing Overhead 3 Actual Manufacturing Overhead Applied Manufacturing Overhead At end of the year adjust for difference and record the difference to COGS Job Order Costing keeps track of the costs of each individual item or job custommade items Process Costing calculate the average cost of each item do not keep track of each individual item 1 Calculate Number of Equivalent Units Units Complete Units in Ending WorkinProcess X Complete gt Might be for BOTH materials and conversion 0 Conversion Direct Labor Manufacturing Overhead 2 Calculate Cost per Equivalent Unit average cost per unit Cost of Beginning WorkinProcess Current Cost of Equivalent Units 3 Calculate Cost of Completed Units Total Cost Transferred to Finished Goods Inventory Units Complete X Average Cost per unit 4 Calculate Cost of the Ending WorkinProcess Inventory total cost remaining in WIP Total Cost Total Cost Transferred to Finished Goods Chapter 4 Traditional Approach 0 1 Cost Pool 0 1 Activity cost driven o 1 Allocation Rate Allocation Rates Estimated Manufacturing Overhead Cost per Direct Labor Hour Estimated Activity Allocate Manufacturing Overhead Allocation Rate XActual Activity Applied Manufacturing Overhead Total Cost Direct Materials Used Direct Labor Manufacturing Overhead Activitv Based Costing ABC 0 More accurate way of allocating manufacturing overhead 0 Split the estimated manufacturing overhead into cost pools 0 EACH cost pool has its own activity cost driven o Depreciation Activity machine hours 0 Indirect Labor Activity direct labor hours 0 Rent Activity square footage 0 Engineering Cost Activity of engineering changes Allocation Rates Depreciation Depreciation Machine A Cost per Machine Hour Est Machine Hours Machine A Machine Setup Cost Machine Setup Cost Cost per Machine Setup Est Number of Setups Material Handling Material Handling Cost Cost per Movement Est Number of Material Movements Other Other Overhead Cost Cost per Direct Labor Hour Est Number of Direct Labor Hours Apply the Overhead Depreciation Cost per Machine Hour X Actual Machine Hours Machine Setup Cost per Setup X Actual Machine Setups Material Handling Cost per Material Movement X Actual Material Movements Other Costner Direct Labor Hour X Actual Direct Labor Hours Applied Manufacturing Overhead Total Cost Direct Materials Used Direct Labor Manufacturing Overhead Chapter 5 Variable Cost remains the same per unit regardless of activity gt As activity increases Total Variable Cost INCREASES Example Cell phone plan 010 per min based on usage Month Activity Cost per min M 1 1 min 010 010 2 5 min 010 050 3 50 min 010 500 Ex Direct Materials Direct Labor pay hourly Commissions more you sell more you get Fixed Cost remains the same in total regardless of activity gt As activity increases Fixed Cost per unit DECREASES Example Cell phone plan 50 per month Month Total Cost Activity Cost per min 1 50 1 min 50 2 50 5 min 10 3 50 50 min 1 Ex Rent Salary 50000 per year Mixed Cost both variable and fixed costs Example Pay 99 per month for cell phone plan but when you go over your allotted minutes you pay per minute Ex Utilities b variable cost per unit hour x activity Total Cost EquationTotal Costs Fixed Costs Variable Costs Y a bx 4 Methods of Splitting Total Cost 1 Engineering Approach 1 Company hires experts or engineers 2 Based on their knowledge they will make assumptions about which expenses should be fixed and variable b Scatter Graph 1 Used historical data 2 Plot data into a graph b Regression Analysis most accurate use all data 1 Use historical data 2 Same as scatter graph except that we are using software Excel or MiniTab b HighLow Method 1 Use historical data 2 Select only 2 data points 3 Select period with highest activity 4 Select period with lowest activity Example Truck Activitv x Total Cost v 1 Select period with highest activity 422 31000 2600 Select period with lowest activity 204 11000 1600 2 Solve for B variable cost per unit Cost at the high Cost at the low Activity at the high Activity at the low b 2600 1600 1000 05 Variable Cost per unit 31000 11000 20000 3 Solve for A fixed cost use data from high OR low yabx OR yabX 2600 a 0531000 1600 a 0511000 a 1050 Fixed Cost per unit a 1050 Fixed Cost per unit y 1050 05X Total Cost Equation Chapter 6 TVDes of Income Statements 1 Traditional Income Statement 1 Required by GAAP for external users annual report 2 Split expenses between product cost and period cost Sales Revenue Cost of Goods Sold both variable and fixed Product Cost Gross Profit Operating Expenses Selling Admin both variable and fixed Period Cost Net Income or Loss 2 Contribution Income Statement a Can only be used internally b Split expenses between variable and fixed split based on behavior Sales Revenue Variable Expenses both product and period costs Contribution Margin Fixed Expenses both product and period costs Net Income or Loss Breakeven Analvsis 1 Breakeven in UNITS quantity how many units we need to sell to make a profit of zero 2 Breakeven in SALES what our sales revenue has to be to make a profit of zero Contribution Income Statement Sales Revenue 3000 units x 12 36000 Variable Expenses 3000 units x 9 27000 Contribution Margin 9000 Fixed Expenses 12000 Net Loss 3000 Contribution Margin per unit Selling price per unit Variable cost per unit 3 12 9 Revenue Variable Cost Units Sold Units Sold gt Tells us how much each unit contributes toward fixed expenses and profits gt For every 1 in sales we have 025 to cover fixed expenses and profits Contribution Margin Ratio Contribution Margin per unit i 25 Selling price per unit 12 Breakeven in UNITS Formula Fixed Costs 12000 4000 units Contribution Margin per unit 3 Eguation Sales Variable Costs Fixed Costs Profits selling price x of units variable cost per unit x of units Fixed Costs Pro ts 12x 9x 12000 0 3x 12000 x 4000 units Breakeven in SALES Formula Fixed Costs 12000 48000 Contribution Margin Ratio 25 Eguation Sales Variable Costs Fixed Costs Profits x 75x 12000 0 x 075x 12000 0 025x 12000 x 48000 Target Profit of 24000 0 How many units do I need to sell Formula Fixed Costs Target Profit 12000 24000 12000 units Contribution Margin per unit 3 Eguation 12x 9x 12000 24000 3x 36000 x 12000 units 0 What does Sales Revenue have to be Formula Fixed Costs Target Profit 12000 24000 144000 Contribution Margin Ratio 25 Eguation x 075x 12000 24000 025x 36000 x 144000 Change Selling Price If selling price decreases breakeven point increases If selling price increases breakeven point decreases Change Variable Cost If variable cost decreases breakeven point decreases If variable cost increases breakeven point increases Change Fixed Cost If fixed costs decrease breakeven point decreases If fixed costs increase breakeven point increases Chapter 7 Relevant Information in order for info to be relevant it must Happen in the FUTURE o DIFFER between alternatives Sunk Cost cost that cannot be recovered took place in the past NOT RELEVANT Opportunity Cost cost given up When selecting one alternative over the other RELEVANT 1 Do we keep or replace equipment Not Relevant gt Sunk Cost Not Relevant OLD Equipment NEW EquipmentCost 35500 Cost 76000 Life 10 years Life 5 years Remaining life 5 years Salvage Value 500 Salvage Value 1000 NOT RELEVANT does not differ Annual Operating Cost 18000 Annual Operating Cost 9000Annua1 Maintenance Cost 1000 Annual Maintenance Cost 1000 gt Annual Depreciation 3500 Annual Depreciation 15000 Always ignore depreciation it is NOT RELEVANT does not require a cash ow Sell it w 10000 Relevant Cost of Keeping vs Operating Costs 18000 X 5 years 90000 45000 10000 76000 Salvage Value 500 1000 Total Relevant Cost of Keeping 89500 110000 Keep OLD save 20500 over 5 years 2 Do we make or buy a component Use 80000 units per year Cost of making Direct Materials Direct Labor Variable Manuf Overhead Fixed Manuf Overhead Vendor can sell us units for 12 each Relevant Cost of Replacing 9000 X 5 years Sell old Buy new Salvage Value Total cost of replacing 40000080000 units 5 per unit 32000080000 units 4 per unit 8000080000 units 1 32000080000 units 4 1120000 14 Scenario 1 if we buy Fixed Manuf Overhead will not be eliminated Cost of making 1120000 Cost of buying Purchase 12 X 80000 960000 Fixed Manuf Overhead 320000 1280000 1280000 1120000 160000 Advantage is to continue making Scenario 2 if we buy Fixed Manuf Overhead will be reduced by 195000 Cost of making 1120000 Cost of buying Purchase 12 X 80000 960000 Fixed Manuf Overhead 320000 195000 125000 1085000 1120000 1085000 35000 Advantage is to buy the units 3 Do we accept a special order Annual capacity 10000 units most you can produce in one year Currently producing 5500 units Cost of making the 5500 units Variable Cost 6320005500 units 115 per unit Fixed Cost 825005500 units 15 per unit 715000 130 per unit Normal selling price 160 Special Order 1000 units for 125 would have to make them If we are at capacity REJECT If we are NOT at capacity Do the math Sales Revenue increases 1000 units x 125 125000 gt additional I39CVCIIUC Variable Cost increases 1000 units x 115 115000 gt additional expense Fixed cost will remain the same no additional Q 10000 Advantage if we accept Offer Variable Cost 125 115 10 x1000 units 10000 If we are not at capacity we will accept as long as the offer is greater than our variable cost Chapter 8 Capital Budgeting process of deciding to invest in capital assets property plant and equipment 0 4 Characteristics 0 High cost 0 Cost quickly becomes a sunk cost 0 Long lives 0 High risk Cost of Capital cost of obtaining cash 4 Methods of Capital Budgeting 1 Net Present Value NPV 2 Internal Rate of Return IRR 3 Payback Period 1 Ignores the time value of money 2 How many years will it take to recover investment b Accounting Rate of Return 1 Ignores the time value of money 2 Only method that uses depreciation expense does not require a cash out ow 3 Investors see this in GAAP financial statements Example Cost of Investment 100000 Residual Value Q 5 years Net annual cash in ows 31000 Cost of capital 14 Net Present Value NPV 1 Calculate the Present Value of Cash Flows 1 PV of Annual Cost In ows gt PV of Annuity 31000 x 3433 PV of Annuity table 5 periods 14 106423 b PV of Residual Value 0 x 0519 PV of 1 table 5 periods 14 106423 0 106423 2 Calculate NPV Present Value of Cash Flows Original Investment NPV 106423 100000 6423 If NPV 0 Accept gt making more than cost of capital 14 If NPV 0 Reject If NPV 0 Making exactly the cost of capital Internal Rate of Return IRR 1 Calculate the Factor Cost of the investment 100000 32258 Net Annual Cash In ows 31000 2 Look up factor in PV of Annuity Table 32258 about 16 or 17 Payback Period of a propose capital project is the calculated expected percentage return Dromised bv a Droiect 1 Payback Period in Years Initial Investment Payback Period in Years Annual Net Cash In ow Each year you take away the annual net cash in ow until you are payback to see how many years it will take Accounting Rate of Return the rate of return for a capital project based on the anticipated increase in accounting operating income due to the Droiect 1 Calculate Straight Line Depreciation Asset Cost Estimated Residual Value Straight Line Depreciation Estimated Useful Life 2 Calculate Accounting Rate of Return Increase in Operating Income Accounting Rate of Return Required Investment Chapter 9 Operating Budget a budget for a specific period that establishes who is responsible for the daytoday operation Sales Budget details the expected sales revenue from a company s operating activities during a certain time period Production Budget details the cost and number of units that must be produced by a manufacturer Purchases Budget details the cost and number of units that must be purchased by a merchandiser Cost of Goods Sold Budget calculates the total cost of all the product a manufacturing or merchandise company estimates it will sell during the period cover by the budget Cost of Services Budget calculates the total cost of all the services a service type business estimates it will provide during the period cover by the budget Selling amp Administrative Budget calculates all costs other than the cost of product or services required to support a company s forecasted sales Budget Income Statement shows the expected net income for the period covered by the operating budget Cash Budget shows whether the expected amount of cash generated by operating activities will be sufficient to pay expenses during the period covered by the operating budget Budgeted Balance Sheet a presentation of estimated assets liabilities and owner s equity at the end of the budgeted period Budgeted Statements of Cash Flows A statement of a company s expected sources and uses of cash during the period covered by the operating budged Static Budget a budget that is based on one level of activity Perceptual Budget the budgeting approach of updating the budget every month Incremental Budgeting Prior year s budget used as a starting point for the current year 0 Only the changes increments need to be justified ZeroBased Budgeting 0 Alternative to incremental budgeting Each year the full amount of each budget item needs to be justified TopDown Budgeting Imposed Budgeting 0 Top management prepares the budget 0 Lowerlevel managers not involved in the process 0 Disadvantage impossible for top management to know every little detail of each department BottomUp Budgeting Participative Budgeting Budget prepared by lowerlevel management 0 Getting more details necessary to come up With accurate budget Purchases Productjon Budget x 10 of May Forecast 600 x 10 January February March Amx 10 x 10 Sales Forecast 600 400 550 700 Desired Ending Inventory 40 5 70 60 Quantity Needed 640 455 620 760 Beginning Inventory i Quantity to be produced 580 415 565 690 Qsh Receipt Schedule How much is going to be collected from our customers by month 20 of sales on account collected in month of the sale 50 of sales on account collected in month following the sale 30 of sales on account collected in second month following the sale Nov Dec Jan Feb Mar Budgeted Sales 30000 50000 20000 25000 40000 15 sales CASH 4 500 7500 3000 3650 6000 25500 42500 17000 21250 34000 JANUARY 30 Nov Sales 7650 50 Dec Sales 21250 20 Jan Sales 3400 32300 3000 cash 35300 FEBRUARY 30 Dec Sales 12750 50 Jan Sales 8500 20 Feb Sales 4250 25500 3750 cash 29250 MARCH 30 Jan Sales 5100 50 Feb Sales 10625 20 Mar Sales 6800 22525 6000 cash 28525 Flexible Budget amp Variances amp Performance Report Sales Volume Variances amp Performance Report Management by Exception Chapter 10 Standard budgeted amount preestablished benchmark Variance difference between the standard amount and the actual amount favorable or unfavorable Revenue Expenses Favorable Actual Budget Favorable Actual Budget Unfavorable Actual Budget Unfavorable Actual Budget Ideal Standards a standard allows for no inefficiencies of any kind Practical Standards a standard that allows for the normal inefficiencies of production Direct Materials Variances why are we over or under budget for materials 0 Direct Material Quantity Standard 0 Direct Material Price Standard 0 Standard Direct Material Cost per Unit 1 Direct Material Usage Quantity Variance a Did we use more or less materials than what we were supposed to Did we waste materials Step 1 Standard Quantity of Direct Material Allowed Step 2 Material Quantity Variance in Units Step 3 Material Quantity Variance in Dollars 2 Direct Material Price Variance b Did we pay more or less for materials than expected Did we pay too much Step 1 Quantity Purchased Price at Standard Step 2 Direct Material Price Variance in Dollars Direct Labor Variances why are we over or under budget for labor 0 Direct Labor Efficiency Standard 0 Direct Labor Rate Standard 0 Standard Direct Labor Cost per Unit 1 Direct Labor Ef ciency Variance a Did the assembly line workers work more or less than what they were supposed to Did they waste their time or were they efficient Step 1 Standard Labor Hours Allowed for Production Step 2 Direct Labor Efficiency Variance in Hours Step 3 Direct Labor Efficiency Variance in Dollars 2 Direct Labor Rate Variance b Did we pay the assembly line workers more or less than expected Did we pay them too much Step 1 Actual Direct Labor Hours at Standard Rate Step 2 Direct Labor Rate Variance Fixed Manufacturing Overhead Variance why are we over or under budget for materials Fixed Manufacturing Overhead Standard 1 Fixed Overhead Volume Variance a Did we pay more or less for materials than expected Did we pay too much Step 1 Under or Over Production in Units Step 2 Standard Hours Associated with Production Step 3 Fixed Overhead Volume Variance 2 Fixed Overhead Budget Variance b Did we use more or less materials than what we were supposed to Did we waste materials Step 1 Fixed Overhead Budget spending Variance Variable Manufacturing Overhead Variance why are we over or under budget for materials Variable Manufacturing Overhead Standard 1 Variable Overhead Ef ciency Variance a Did we pay more or less for materials than expected Did we pay too much Step 1 Standard Labor Hours Allowed for Production Step 2 Direct Labor Efficiency Variance in Hours Step 3 Variable Overhead Efficiency Variance in Dollars 2 Variable Overhead Spending Variance b Did we use more or less materials than what we were supposed to Did we waste materials Step 1 Standard Variable Overhead for Actual Labor Hours Step 2 Variable Overhead Spending Variance 0 Total Standard Cost per Unit Budget DM Price Standard 210lb DM Quantity Standard 2 lbs per unit DL Rate Standard 15hour DL Efficiency Standard 3 hours per unit Direct Materials Variances 1 DM Price Variance Actual Quantity Purchased 18000 lbs vs lbs X Actual Price X 2 36000 37800 F 1800 37800 36000 2 DM Usage Variance Actual Quantity USED 15100 lbs vs 14700 lbs X Standard Price X 210 210 31710 30870 U 840 Standard Quantity ALLOWED Actual Units Produced Actual Actual Production 7350 units Purchased 18000 lbs Cost 2lb Used 15100 lbs Labor hours worked 21500 hours Paid 16hour Actual Quantity Purchased 18000 X Standard Price X 210 Standard Quantity ALLOWED X Standard Price X X DM Quantity Standard 7350 X 2 lbs 14700 lbs 31710 30870 Direct Labor Variances 1 DL Rate Variance Actual Hours Worked 21500 hours vs Actual Hours Worked 21500 hours X Actual Rate X 16 X Standard Rate 15 344000 322500 U 21500 344000 322500 2 DL Ef ciency Variance Actual Hours Worked 21500 hours vs Standard Hours ALLOWED 22050 hours X Standard Rate 15 Standard Rate 15 322500 330750 F 8250 330750 322500 Standard Hours ALLOWED Actual Units Produced X DL Efficiency Standard 7350 X 3 hours 22050 hours Chapter 11 Centralized Management Decentralized Management Most decisions are made by the Decision process is delegated to lowerlevel headquarters management Top management makes most decisions Advantages Advantages Lowerlevel managers are more 0 Decisions can be made faster familiar with details 0 Decisions made more in line with o Allows top management to spend overall strategy more time on the overall strategy 0 More experienced than lower 0 Allows lowerlevel managers to level managers gain experience Disadvantages W o Lowerlevel managers can make 39 TOP management may net be decisions that are not in line with familiar with all of the details overa strategy 0 Time consuming 0 Less experience 0 Lowerlevel managers do not have an opportunity to gain experience Business Segment a part of a company managed by a particular individual or a part of a company about which separate information is needed Segment Report reports that provide information pertaining to a particular business segment Segment Margin the amount of income that pertains to a particular segment Direct Fixed Cost fixed cost incurred to support a single business segment Common Fixed Cost fixed cost incurred to support more than one business segment or the company as a Whole Revenue Center a business segment in which the manager has responsibility and authority to act to increase revenues but has little or no control over costs and the amount invested in the segment Cost Center a business segment Where the manager has responsibility and authority to act to decrease or at least control costs but has little or no control over the revenues generated or the amount invested in the segment Pro t Center a business segment in which the manager has the responsibility and authority to act to increase revenue and decrease or at least control costs but has little or no control over the amount invested in the segment Investment Center a business segment that is evaluated based on the amount of profit generated relative to the amount invested in the segment gt tells us how much we are making for every 1 we have invested Return on Investment ROI Segment Income Segment Investment Assets gt amount of income above what was required Residual Income Actual Income Required Income Residual Income Exampl Segment Income 66000 Segment Investment 550000 Required Return 8 ROI 66000 12 550000 Residual Income Actual Income Required Income Required Return x Segment Investment 8 X 550000 66000 44000 22000 Balanced Scorecard an integrated set of performance measures organized around four perspectives 1 Financial 2 Customer 3 Internal 4 Innovation amp Learning Balance Scorecard Objectives Measures Targets Initiatives Business Process a stream of connected activities Value Chain a stream of connected activities Lean Manufacturing a production practice that focuses on reducing waste and inefficiencies in the production of the product JustinTime J IT a method of eliminating or greatly reducing inventory by delaying the purchase of material until it is actually needed for immediate use Six Sigma a business management strategy that seeks to identify and remove causes of defects and errors
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