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Chapter 8 (part 2) and Chapter 9 Notes

by: Rachel Moore

Chapter 8 (part 2) and Chapter 9 Notes ACCT 2102

Marketplace > University of Georgia > Accounting > ACCT 2102 > Chapter 8 part 2 and Chapter 9 Notes
Rachel Moore
GPA 3.33

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About this Document

These notes cover part 2 of Chapter 8 which was discussed on March 21st and all of Chapter 9 which was discussed March 23rd and March 25th.
Principles of Accounting II
Class Notes
ACCT 2102, Farmer, uga, Chapter 8, chapter 9, managerial accounting
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This 8 page Class Notes was uploaded by Rachel Moore on Friday March 25, 2016. The Class Notes belongs to ACCT 2102 at University of Georgia taught by Farmer in Spring 2016. Since its upload, it has received 121 views. For similar materials see Principles of Accounting II in Accounting at University of Georgia.


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Date Created: 03/25/16
ACCT 2102 March 21, 2016 – March 23, 2016 Chapter 8 (Part 2) Notes Relevant Costs for Short-Term Decisions Costs Seg-1 Seg-2 Total SR $ + $ = $ <VC> <$> + <$> = <$> VC FC CM $ + $ = $ + = <Trace FC> <$> <$> <$> SM $ + $ = $ Trace Common <Common FC> <$> + <$> = <$> Decisions to Discontinue Products, Departments, or Stores (Keep or Drop) • Will discontinuing the product affect sales of the company’s other products? Maybe; increase or decrease • What could we do with the freed capacity? Segmented income statement 15,000 20,000 1,500 36,500 What will happen to operating income if Giant Eagle drops its produce line and makes no other changes to its operations? For now, assume this decision will not affect the sales of the other departments. Decrease by $1,500 to $15,000 Created By: Rachel Moore Not for redistribution. General Meat Deli Total SM $15,000 $20,000 $9,000 $44,000 <Common> <$20,000> OPY $24,000 -or- $16,500 + ($9,000 − $1,500) = $7,500 = $24,000 General Meat Deli Total CM $21,000 $25,200 $12,000 <Trace FC> <$5,000> <$4,000> <$3,000> SM $16,000 $21,200 $9,000 $46,200 <Common> <$20,000> OPY $26,200 2 special 1 pricing 1 keep or drop 1 make or buy Outsourcing Decisions (Make or Buy) • What are the benefits to outsourcing? Time; space; usually saves money. • What are the drawbacks? May cost more; loss of control. • What types of services are outsourced? Accounting, marketing, legal, tangible outsourcing, etc. • Considerations: o How do our variable manufacturing costs compare to the outsourcing cost (purchase price)? Unit DM + Unit DL + Unit Variable MOH vs PP o Decrease in total FC Created By: Rachel Moore Not for redistribution. Unit variable = $300 150 × 5,000 = ???????? = $750,000 Should Americar outsource production of the 5,000 transmissions or not? What effect would outsourcing have on operating income? Make Buy ($300)(5,000) + $750,000 = $2,250,000 ($400)(5,000) + $450,000 = $2,450,000 OPY will decrease if we outsource. Should Americar outsource if it needs 6,000 transmissions next period, rather than 5,000? Assume the same relevant range for all costs. Make Buy ($300)(6,000) + $750,000 = $2,550,000 ($400)(6,000) + $450,000 = $2,850,000 OPY will decrease if we outsource. **If Americar needs 5,000 transmissions, what is the maximum price it would be willing to pay per transmission?** Make Buy ($300)(5,000) + $750,000 = $2,250,000 ???? 5,000 + $450,000 = $2,250,000 x = $360 Created By: Rachel Moore Not for redistribution. Assume Americar needs 5,000 transmissions per month. However, let’s now assume that Americar’s next best alternative for the use of excess capacity is to lease it out as warehouse space. The space would lease for $250,000 per month. What affect would outsourcing have on the company’s operating income? Make Buy ($300)(5,000) + $750,000 = $2,250,000 $400 5,000 + $450,000 − $250,000 = $2,200,000 OPY increases by $50,000 Created By: Rachel Moore Not for redistribution. ACCT 2102 March 23, 2016 – March 25, 2016 Chapter 9 Notes The Master Budget What is a budget? A plan with numbers. Why should companies budget? 1. Plan for the future 2. Communication tool 3. Control How do companies budget? Top Down versus Participative Prior year review, rolling budgets, and zero-based budgets Operating Budgets • Sales • Purchases (merchandising) • Operating Expenses GP=(SP)(40%) à cost = (SP)(60%) Sales Budget: August September October November December SR $250,000 $200,000 $216,000 $237,600 $250,000 Purchases Budget: (only budget that you should memorize) October Cost of Sales = $216,000 * 60% November Cost of Sales = $237,600 * 60% October Cost of BI = 40,000 + (10% * $129,600) Created By: Rachel Moore Not for redistribution. August September October November December Cost of Sales $150,000 $120,000 $129,600 $142,560 $150,000 Cost of EI $52,000 $52,960 $54,256 $55,000 ?? (Cost of BI) ($55,000) ($52,000) <$52,960> <$54,256> Cost of Purchases $147,000 $120,960 $130,896 $143,304 Operating Expenses: October November Expense Cash outflow Expense Cash outflow Salaries and Wages $20,000 $20,000 $20,000 $20,000 Sales Commission $21,600 $20,000 $23,760 $21,600 Lease $10,000 $10,000 $10,000 $10,000 Depreciation* $4,000 $0 $4,000 $0 Utilities, etc. $3,000 $3000 $3,000 $3,000 Insurance $1,000 $0 $1,000 $6,000 Bad Debt* $3,024 $0 $3,326,40 $0 Total $62,624 $53,000 $65,086 $60,600 *Not cash transactions; will never be in the cash column. TRUE or FALSE: To accurately do the operating expense budget you will need to know both the functionality and behavioral aspects of the cost. TRUE Financial Budgets • Capital Expenditure budget • Cash Budgets o collections/receipts/inflows o payments/disembursements/outflows o combined Created By: Rachel Moore Not for redistribution. Collections Budget: August September October November December recall sales $250,000 $200,000 $216,000 $237,600 $250,000 cash (30%) $75,000 $60,000 $64,800 $71,280 $75,000 credit (70%) $175,000 $140,000 $151,200 $166,320 $175,000 October November cash sales (oct) $64,800 (nov) st 1 month 80% (sept) $112,000 (oct) 2 month 18% (aug) $31,500 (sept) total collections/receipts $208,300 $217,440 Payments Budget: August September October November December recall purch. $147,000 $120,960 $130,896 $143,304 ?? recall op exp $53,000 $60,600 October November month purchase 100% $130,896 $143,304 cash expenses $53,000 $60,600 capital expenditures -- $35,000 total payments $183,896 $238,904 If “purchases made for in the month of purchase” is taken away and replaced with “2/10 net 30” – discount is valid in first 10 days after invoice date, only pay 98% of price. Watch for… 1. Dividends 2. Principal payments on any outstanding debt Cash Budget: October November beginning cash $12,000 $36,404 total collections/receipts $208,300 $217,440 (total payments) $183,896 $238,904 ending cash $36,404 $14,940 Created By: Rachel Moore Not for redistribution. Options if ending cash is negative: 1. Fire people 2. Invest more 3. Not upgrade computer equipment 4. Look at financing options for upgrades 5. Offer bigger discounts to incentivise customers to pay on time 6. Borrow from a line of credit – call bank and ask for money in your account (test question) If ending cash is -$1,000, you need to borrow $11,000 to get back to your goal ending cash. Created By: Rachel Moore Not for redistribution.


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