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Profit formula
Ch 5
- (Sales - Variable Expenses) - Fixed Expenses
- (P X Q - V X Q) - Fixed Expenses
- Unit CM X Q - Fixed expenses
- (CM/Sales) X Sales - Fixed Expense
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Sales
Ch 5
Selling price X Quantity sold or P X Q
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Variable Expenses
Ch 5
- Variable Expense per Unit X Quantity sold
- or V X Q
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Unit CM
Ch 5
Selling Price per Unit - Variable Expense per Unit = P - V
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Contribution Margin Ratio
Ch 5
- CM Ratio = CM/Sales
- CM Ratio = Unit CM/ Unit selling Price
- 1 - Variable Expense Ratio
- stated as a %
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Change in Contribution Margin
Ch 5
CM Ratio X Change in Sales
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Variable Expense Ratio
ch 5
Variable Expense/ Sales
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Contribution Income Statement Format
Ch 5
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Break-Even Formula
ch 5
- Unit Sales to break even = Fixed Expenses/Unit CM
- Dollar sales to break even = Fixed Expenses/CM Ratio
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Unit sales to attain the target profit
ch 5
- Units: Target Profit + Fixed Expenses/ Unit CM Ratio
- Dollar: Target Profit + Fixed Expense/ CM Ratio
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Margin of Safety in Dollars
Ch 5
Total budgeted (or actual) Sales - Break-Even Sales
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Margin of safety in %
Ch 5
Margin of safety in $/ Total budgeted (or actual) Sales in $
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Degree of Operating Leverage
Ch 5
CM/Net Operating Income
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% change in Net Operating Income
Ch 5
Degree of Leverage X % change in Sales
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Sales Mix
Ch 5
refers to the relative proportions in which a company's products are sold.
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Two types of Job Costing
Ch 4
- 1. Job-Order
- 2. Process Costing
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Similarities between Job-Order and Processing Costing
Ch 4
- Both systems have the same basic purpose - to assign material, labor, and manufacturing costs to products and to provide a mechanism for computing unit product costs
- Both use the same basic manufacturing accounts - Manufacturing Overhead, Raw Materials, Work in Process, and Finished Goods
- The flow of costs thru the accounts is basically the same
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Differences between Job-Order and Process Costing
Ch 4
- 1. Process Costing is used when a company produces and continuous flow of units that are indistinguishable from another (ex. soda) vs Job-Order is used when a company produces many different products that have unique production requirements.
- 2. Process costing identifies costs by departments and assigns these costs uniformly and the end of the period vs Job-Order identifies costs by Material, Labor, and overhead with a particular customer.
- 3. Process costing computes costs by departments and Job-order computes costs by job.
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Material Costs:
The Journal entry to record the materials used in the first process department - the formulating dept.
Ch 4
- Work in Process -Formulating ........ Debit
- Raw Materials...................................Credit
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Material Costs:
The Journal entry to record the materials used in the 2nd process department - the Bottling dept.
Ch 4
- Work in Process -Bottling ........ Debit
- Raw Materials...................................Credit
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Labor Costs:
The Journal entry to record the labor costs in the Formulating Department.
Ch 4
- Work in Process-Formulating.....Debit
- Salaries and Wages Payable..........Credit
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Overhead Costs:
The Journal entry to record the overhead cost applied in the Formulating department.
Ch 4
- Work in Process-Formulating....Debit
- Manufacturing Overhead..............Credit
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Completing the Cost Flows:
The journal entry transfers the cost of partially completed units from the Formulating dept. (dept. 1) to the bottling dept. (dept. 2)
Ch 4
- Work in Process- Bottling......Debit
- Work in Process-Formulating......Credit
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Completing the Cost Flows:
Journal entry to record processing has been completed in the last dept. (bottling) and units are transferred to "Finished Goods"
Ch 4
- Finished Goods...........Debit
- Work in Process- Bottling.....Credit
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Completing the Cost Flows:
The Journal entry to record the transfer to Cost of Goods Sold.
Ch 4
- Cost of Goods Sold.......Debit
- Finished Goods.................Credit
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Equivalent Units
Ch 4
Number of partially completed units X % completion
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Weighted Average Method for computing a departments Equivalent Units
Ch 4
Equivalent units of production = Units Transferred to the next department or to Finished Goods + Equivalent Units in ending WIP inventory
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Cost per Equivalent Unit - Weighted average Method
Ch 4
cost of beg. WIP + Cost added during the period/ Equivalent Units of production
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Cost Reconciliation Report
Ch 4
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Absorption costing
Ch 3
All manufacturing costs, both fixed and variable, are assigned to units of product- units are said to fully absorb the costs.
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Bill of Materials
Ch 3
a document that lists the type and quantity of each direct material needed to complete a unit of product.
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Materials requisition form
Ch 3
document that specifies the type and quantity of materials drawn from the store room and identifies the job that will be charged for the cost of the materials.
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Job Cost Sheet
Ch 3
records the materials, labor, and manufacturing overhead costs charged to that job.
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Job Cost Sheet Example
Ch 3
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Predetermined Overhead Rates Formula
Ch 3
POH = Estimated total manufacturing Overhead/Estimated total amount of the allocation base
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Steps to compute POH Rate
- 1. Estimate the total amount of the allocation base (the denominator) that will be required for next periods estimated level of production. (labor hrs or machine hrs)
- 2. Estimate the total fived manufacturing overhead costs for the coming period and the variable manufacturing overhead costs per unit of allocation base.
- 3. Use the cost formula Y = a + bX to estimate the total manufacturing overhead costs (the numerator) for the period.
- Y = The estimated total MOH cost
- a = The estimated total fixed MOH cost
- b = The estimated variable MOH costs per unit of the allocation base
- X = The estimated total amount of the allocation base.
- 4. Compute the POH rate.
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Formula to determine the amount of overhead to apply to a job
ch 3
Predetermined Overhead Rate X Amount of the allocation base incurred by the job.
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Cost Driver
Ch 3
a factor that causes overhead costs.
Examples include machine hours, beds occupied, computer time, ect...
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Cost of Goods Manufactured
Ch 3
cost of goods finished that were finished during the period.
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Finished Goods
Ch 3
Cost of completed units of product that have not yet been sold.
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Journal entry to record the purchase of Raw Material on Account
Ch 3
- Raw Material...........Debit
- Account Payable.............Credit
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Journal Entry to record the issue of direct and indirect materials to the production departments
- Work in Process...............Debit
- Manufacturing Overhead...Debit
- Raw Materials........................Credit
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