Accounting

• Revenue:
•  Sales
• -Sales Returns and Allowances
• -Sales Discounts
• =Net Sales

• Expenses:
• -Cost of Merchandise Sold Expense
• =Gross Profit
• -Operating Expenses:
•      Selling Expenses
•      Administrative Expenses
• =Income from Operations
• +Other Income
• -Other Expenses
• =Net Income

a 2% discount is offered if payment is made within 10 days; otherwise full payment is due within 30 days

no discount is offered; full payment is due within 30 days

no discount is offered; full payment is due at the end of the month.

• -The Buyer owns the goods during transit
• -The Buyer pays the shipping costs, which increase buyer's cost of inventory

• -The Seller owns the goods during transit.
• -The Seller pays the shipping costs, which increase seller's Transportation Out

Gross amount sold * Discount percentage = $1960

• Seller:
• Accounts receivable and sales are the same.
• Cost of Merchandise Sold and Merchandise inventory are the same decrease by the same amount.
• Buyer:
• Merchandise Inventory and accounts payable increase by the same amount.

Sale - Cost of Merchandise Sold = Net Income

• Beginning Inventory
• +Purchases
• +Shipping Charges
• -Purchase Discounts
• -Purchase Returns and Allowances
• -COGS
• =Ending Inventory

• Sales Revenue
• -Sales Discounts
• -Sales Returns and Allowances
• =Net Sales

Gross Profit % = Gross Profit / Net Sales

Measures how much of each dollar in a sales transaction is profit to the seller (before other expenses).

• - Providing services to customers (Do not buy or sell goods)
• - Reports no inventory on the balance sheet
• - reports no cost of sales expense on the income statement

• - Buying finished goods from manufacturers and sell them to customers
• - Reporting Merchandise Inventory on the balance sheet
• - Reporting Cost of Merchandise Sold expense on the income statement. 

• - Buying elements to make goods (DM, DL, and FOH) and sell them to customers.
• - Reporting Raw Materials Inventory, Work in Process Inventory, and Finished Goods Inventory on the balance sheet.
• - Reporting Cost of Goods Sold expense on the income statement.

• Capitalize cost if the item will be used in the future to help generate revenue.
• - Current asset if it will be used within one year.
• - Long-term asset if it will be used in longer than one year.

Expense cost if the item is used up in the current period to help generate revenue.

• Capitalized as an Asset(Inventory) on the balance sheet:
•  Direct Materials cost
•  Direct Labor cost
•  Factory Overhead Cost(this and Direct labor are conversion costs)
• = Total Manufacturing Costs

Cost of Goods Sold Expense

The Direct Materials, Direct Labor, and Factory Overhead cost of the goods sold in the current period.

Expense on the Income Statement

• - Selling Expenses: costs supporting product sales this period
• - Administrative Expenses: costs of running the office this period

• a. To help them set a price for goods that will generate profit
• b. To control operations:
•         - Costs by department or process
•         - Compare actual costs to budgeted costs
• c. To develop financial statements: 
•         - Cost of ending inventory on balance sheet
•         - Cost of goods sold on income statement

They accumulate product costs in total and by job (individual product or product type)

• 1. Warehouse - When materials are purchased
• 2. Production Floor - When work begins on product
• 3. Showroom - When product is completed
• 4. No longer here - When product is sold

• 1. RM Inventory (beg. Bal. + Purchases - Issuances = End Bal)
• 2. WIP Inventory (beg. bal. +DM+DL+FOH-COGM=End Bal)
• 3. FG Inventory (Beg. Bal. +COGM - COGS = End Bal)
• 4. COGS (beg bal + COGS = End Bal)

• -Cost of Goods Sold
• -Raw Materials Inventory
• -Direct Materials Cost
• -Work in Process Inventory
• -Direct Labor Cost
• -Finished Goods Inventory

• Sales
• -Gross Profit
• =COGS

• Beginning RM Inventory
• +Purchased Materials
• -Materials Used in Production(direct and indirect)
• =Ending Raw Materials Inventory

• Beginning Materials
• +Materials Purchased
• -Indirect Materials
• -Materials Inventory
• =Direct Materials Cost

• Beginning WIP
• +Direct Materials
• +Direct Labor
• +Factory Overhead
• -Amount Transfd. to FG (COGM)
• =Ending WIP Inventory

• Beginning FG Inventory
• +Amount Transf. to FG (COGM)
• -COGS
• =Ending FG Inventory

• A. A significant portion of the total cost of the product
• B. Easily Traced to the final product
• C. Integral to the product

• A. Not a significant portion of the total cost of the product
• B. Not easily traced to the final product

(Part of Factory Overhead Cost)

• A. A Significant portion of the total cost of the product
• B. is easily traced to the final product
• C. Is integral to the product

• A. Not a significant portion of the product costs
• B. Not easily traced to the final product

(Part of Factory Overhead Cost)

All product costs incurred during the manufacturing process except for direct materials or direct labor.

• Components:
• A. Indirect Materials cost
• B. Indirect Labor cost
• C. Other costs of operating the factory that are not traceable to a given product

Predetermined FOH rate = (Estimated total FOH Costs for the year)/(Estimated activity base for the year)

Job's use of base activity * FOH rate = Job's share of FOH costs

• Record the application of costs:
• - Increase Work in Process Inventory
• - Decrease Factory Overhead

• If Actual > Applied: then FOH costs are underapplied. The balance would be disposed of by:
•        Increase Cost of Goods Sold
•        Decrease Factory Overhead
• If Actual < Applied: then FOH costs are overapplied. The balance would be disposed of by: 
•        Decrease Cost of Goods Sold
•        Increase Factory Overhead

1. Predetermind FOH rate = FOH Cost / Machine hours

• 2. Applied FOH Costs =
• Machine hours worked in a time period 
• x Per Machine Hour
• = FOH cost applied to jobs in (a time period)

Ch. 10 Slide 20

TC = (VC/u. * Units) + FC

Variable: Total amount increases, per unit amount is constant

Fixed: Total amount is constant, per unit amount decreases

Mixed: Total amount increases, per unit amount decreases

Variable: Total amount decreases, per unit amount is constant

Fixed: Total amount is constant, per unit amount decreases

Mixed: Total amount increases, per unit amount decreases

• Variable cost per unit = change of Cost 
•                                    change of Volume

• = (highest total cost - lowest total cost)
•         (highest units - lowest units)

Fixed = total cost - variable cost

Total Cost = Fixed Cost + Variable Cost

• Sales Revenue
• -Cost of Goods Sold
• =Gross Profit

• (Operating Expenses)
• -Selling expenses
• -Administrative expenses
• =Income from Operations

• Sales Revenue
• (Variable costs)
• -Variable portion of COGS Expense
• -Variable portion of Selling Expense
• -Variable portion of Administrative Expense
• =Contribution Margin

• (Fixed Costs)
• -Fixed portion of COGS Exp.
• -Fixed portion of Selling Exp.
• -Fixed portion of Admin. Exp
• =Income from Operations