Chapter 1 - Second Half: Managerial Accounting and Cost Concepts
Chapter 1 - Second Half: Managerial Accounting and Cost Concepts ACC 252
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This 9 page Class Notes was uploaded by Kimberly Portes on Thursday October 15, 2015. The Class Notes belongs to ACC 252 at Syracuse University taught by Prof. Zadzilka in Fall 2015. Since its upload, it has received 17 views.
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Date Created: 10/15/15
Accounting 252 Section M002 October 12 2015 Part 2 Planning Planning involves developing objectives and preparing various analyses to achieve these objectives Top level Cost behavior and C V P Cost Volume Pro t Analysis Detailed Budgets Chapter 1 Managerial Accounting and Cost Concepts pages 33 43 TVbes of Cost Behavior 0 Variable Total variable cost proportional to activity level Variable cost per unit remains the same over the relevant range of activity 0 Fixed Total xed cost remains the same even when the activity level changed within the relevant range Fixed cost per unit goes down as the activity level goes up Cost Behavior 0 The way costs responds to changes in volumeactivity New category mixed costs Behavior of Mixed Costs 0 Contains both a variable and a xed component 0 Variable portion changes with volume 0 Fixed portion constant over a period of time gt EX telephone bill utilities bill gt A at rate of 5 plus 2 per unit Analysis of Mixed Costs 0 Rough approach eyeball using a scatter graph 0 Mathematical approach highlow method using two data points gt focus on this method for class 0 Statistical approach regression model using all data points HighLow Method of Analyzing Mixed Costs 1 Calculate the variable cost per activity level variable rate Use highestlowest periods to determine variable cost per ac v ylevel highest lowest cost highest lowest activity level 2 Calculate total xed costs For either highestlowest periods apply the variable rate to establish portion of total cost that s deemed variable Total cost variable rate activity level xed cost 3 Convert the relationship into a general equation Total cost xed cost variable cost per activity level X X the activity level Practice Pages 53 54 E1 5 0 Refer to table on page 54 0 Using the highlow method nd the general equation of the costs associated based on occupancy days Step 1 Identify the highest and lowest periods and activity levels 0 Highest August Electrical cost 5148 Occupancy days 2406 0 Lowest October Electrical cost 1588 Occupancy days 124 Step 2 Calculate the variable cost per activity level 0 5148 15882406 124 o 35602282 156 per day Step 3 Calculate total xed costs 0 Use a single month to determine gt it doesn t matter which the answer will be the sameextremely close regardless October 1588 156 124 139456 Step 4 Convert the relationship into a general equation 0 139456 156X An estimation of the hotel s utility cost based on occupancy days Cost Structure Refers to the relative proportion of xed and variable costs in an organization 0 Managers often have some latitude in determining their organization s cost structure A New Income Statement Contribution Formatted Income Statement 0 Traditional approach sales organized by function Used primarily for external reporting EX Sales 100000 Cost of Goods Sold 70000 Gross Margin 30000 Operating Expenses 20000 Net Income 10000 0 Contribution approach costs organized by behavior Used primarily for management EX Sales 100000 Variable Expenses 60 000 Contribution Margin 40000 Fixed Expenses 30 000 Net Income 10000 0 Note how despite either approach the net income still ended up the same Practice Page 54 E1 6 0 Refer to the table on page 54 0 Prepare a traditional income statement 0 Prepare a contributed approach statement Traditional Income Statement Sales 600000 Cost of Goods Sold 160 000 Gross Margin 440000 Operating Expenses 190 000 Net Income 250000 Sales selling price per unit number of units sold 30 20000 units Cost of Goods Sold think Finished Goods Inventory Finished Goods Inventory Beginning Merchandise Inventory 24000 Merchandise Purchases 180000 Ending Merchandise Inventory 44000 can be solved by doing 44000 24000 180000 160000 Cost of Goods Sold Operating Expenses Fixed administration expense Variable administration expense Fixed selling expense Variable selling expense 30000 220000 units 40000 420000 units 190000 Contribution Income Statement Sales 600000 Variable Expenses 2800 Contribution Margin 320000 Fixed Expenses 70000 Net Income 250000 Sales selling price per unit number of units sold 30 20000 units Variable expenses COGS variable administration expense variable selling expense 160000 220000 units 420000 units 280000 Fixed Expenses xed administration expense xed selling expense 40000 30000 70000 Cost Structure and Pro t Stabilitv There are advantages and disadvantages to high xed costslow variable costs structures and vice versa Advantage income higher in good years compared to companies with a lower proportion of xed costsa higher proportion of variable costs Disadvantage income lower in bad years compared to companies with a higher proportion of xed costsa lower proportion of variable costs Practice Problems from Class Page 153 E3 15 1 Calculate the cost per unit using traditionalfactory wide allocation 2 Calculate the cost per unit using activity based costing Refer to table and information in textbook Traditional Overhead Flexible Volume 1000 units Direct Labor hours 2 hours Direct Materials 11000 Direct Labor 3030 Manufacturing Overhead 10000 Cost per Unit 24000 Taken from the two paragraphs before the first table Taken from the two paragraphs before the first table Direct materials taken from rst table direct materials cost per unit Direct labor taken from rst table 39direct labor cost per unit First determine the predetermined overhead rate 600000 total estimated overhead cost 1000 exible units 2 direct labor hours 10000 rigid units 1 direct labor hour 60000012000 direct labor hours 50 per direct labor hour Calculate the actual overhead 50 per direct labor hour 2 direct labor hours per unit 100 per one unit of exible 110 30 100 240 Rigid Volume 10000 units Direct Labor hours 1 hour Direct Materials 8000 Direct Labor 1500 Manufacturing Overhead 5000 Cost per Unit 14500 Taken from the two paragraphs before the rst table Taken from the two paragraphs before the first table Direct materials taken from rst table direct materials cost per unit Direct labor taken from rst table 39direct labor cost per unit First determine the predetermined overhead rate 600000 total estimated overhead cost 1000 exible units 2 direct labor hours 10000 rigid units 1 direct labor hour 60000012000 direct labor hours 50 per direct labor hour Calculate the actual overhead 50 per direct labor hour 1 direct labor hours per unit 50 per one unit of rigid 80 15 500 145 Activity Based Overhead 0 First calculate the activity rates by taking every activity cost s estimated overhead and dividing them by the total amount of expected activity of exible and rigid units for that activity Purchase orders 20000400 50 per order Rework requests 10000200 50 per request Product testing 2100002100 100 per test Machine related 3600004000 90 per machine hour 0 Determine the amount of overhead assigned to each model exiblerigid by multiplying the activity rate by the amount of expected activity Flexible Purchase orders 50100 5000 Rework requests 5060 3000 Product testing 100900 9000 Machine related 901500 135000 0 Add the overheads assigned to each model s activity pool together to calculate the model s total activity overhead cost Total activity overhead cost for Flexible 233000 0 Calculate the total cost per activity unit by dividing the Total activity overhead cost for Flexible and dividing it by the number of Flexible units Flexible s total cost per activity unit 2330001000 233 0 Calculate the unit product cost by adding up the direct materials direct labor and overhead allocated Unit product cost 110 30 233 373 Flexible Volume 1000 units Direct Labor hours 2 hours Direct Materials 11000 Direct Labor 3000 Cost per Activity Unit 23300 Unit Product Cost 37300 notice how this amount is very different from the amount generated when traditional overhead was used Rigid Purchase orders 50300 15000 Rework requests 50140 7000 Product testing 1001200 1200000 Machine related 902500 225000 Total activity overhead cost for Rigid 367000 Cost per Activity Unit 36700010000 3670 Unit Product Cost 80 15 3670 Rigid Volume Direct Labor hours Direct Materials Direct Labor Cost per Activity Unit Unit Product Cost 10000 units 1 hour 8000 15 3670 1 00 3170
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