ACC 213 Final

Know how to calculate sales when you have a target profit and the company has more than one product

$Sales to attain target profit = Target profit + fixed expenses / CM ratio

How to calculate cost of unused capacity

(amount of allocation base at capacity - actual amount of allocation base) x POR

Know how to assign costs using ABC

1. Identify costly activities required to complete products 2. Assign OH costs to activities 3. Identify cost driver for each activity 4. Calculate POR for each activity 5. Allocate OH costs to products

Understand that a company can use multiple OH rates and the reason for using them

A company may choose to use a predetermined OH rate for each of its production departments because it reflects differences across departments in terms of how jobs consume overhead costs

Know the difference between a static and flexible budget

A flexible budget is one that is allowed to adjust based on a change in the assumptions used to create the budget during management's planning process. A static budget, on the other hand, remains the same even if there are significant changes from the assumptions made during planning

Know what generates an activity variance and a revenue and spending variance

Activity variance: Difference between actual level of activity and the level activity in the planning budget from the beginning of the period R&S variance: Difference between the actual total revenue and what the total revenue should have been, given the actual level of activity for the period

Administrative costs

All costs associated with the general management of an organization rather than with manufacturing or selling Executive compensation, general accounting, legal counsel, secretarial, public relation (any cost involved in the overall general administration of the organization as a whole) Can be either direct or indirect

Selling costs

All costs that are incurred to secure customer orders and get the finished product to the customer Sometimes called order-getting and order-filling costs Advertising, shipping, sales travel, sales commissions, sales salaries, cost of finished goods warehouses Can either be direct or indirect

Period costs

All costs that are not product costs All selling and administrative expenses are treated as period costs Sales commissions, advertising, public relations, executive salaries, rental costs of administrative offices etc Not included in part of the cost of either purchased or manufactured goods Expensed on the income statement in the period in which they are incurred Do not flow through the inventory accounts on the balance sheet, not included in COGS in the income statement Recorded as selling and administrative expenses on income statement in period incurred

What costs go into MO and how to calculate a predetermined OH rate?

All manufacturing costs except DM and DL MO includes a portion of raw materials called indirect materials and indirect labor POR = Estimated total MO cost / Estimated total amount of allocation base

Cost of goods manufactured

Amount transferred from WIP to Finished Goods

Know what an avoidable cost is and what a relevant cost is

Avoidable cost: Cost that can be eliminated by choosing one alternative over another Relevant cost: Should be considered when making decisions

Know what a contribution margin is, how to calculate it, and what a contribution margin ratio is

CM: Amount remaining from sales revenues after all variable expenses have been deducted CM = Sales - variable expenses CM Ratio: CM as a percentage of sales CM Ratio = CM/Sales

Know when MO is overapplied or underapplied

Definition: Difference between the OH cost applied to WIP and the actual OH costs of a period Cause? method of applying OH to jobs using a POR assumes that actual OH costs will be proportional to the actual amount of the allocation base incurred during the period Underapplied: Not all the costs accumulated in MO account are applied during the year Overapplied: More MO is applied to jobs than what was actually incurred

Know how to determine if a product or product line should be kept or dropped

HMWK Chapter 13.2 Question 3

Know how to determine if a product should be made or bought

HMWK Chapter 13.2 Question 5

Know how to calculate cash collections from a sales budget

HMWK Chapter 8.1 - Question 1

Know what an incremental cost is

Increase in cost between two alternatives

Know how to calculate price and quantity variances for material, and the rate and efficiency variances for labor and variable OH

Materials Price Variance (MPV): (AQ x AP) - (AQ - SP) Materials Quantity Variance (MQV): (AQ x SP) - (SQ x SP) Labor Rate Variance (LRV): (AH x AR) - (AH x SR) Labor Efficiency Variance (LEV): (AH x SR) - (SH x SR) Variable OH Rate Variance (VOHR): (AH x SR) - (SH x SR) Variable OH Efficiency Variance (VOHE): (AH x SR) - (SH x SR)

What costs are recorded on a job cost sheet?

Materials, labor, and MO

How to apply OH

OH applied to particular job = POR x amount of allocation base incurred by the job

Know what an opportunity cost is

Potential benefit that is given up when one alternative is selected over another

Understand ROI and how to use it

ROI = Margin x Turnover Margin = Net operating income/sales Turnover = sales / average operating assets ROI: financial measure commonly used to evaluate investment center performance

Know the three inventory accounts and what costs go into each and how they flow through the production process

Raw Materials Inventory: Any materials that go into the final product Work in Process Inventory: units of product that are only partially complete and will require further work before they are ready for sale to the customer Finished Goods Inventory: Completed units of product that have not yet been sold to customers Production process: When raw materials are used in production as DM, their costs are transferred to the WIP inventory. To transform DM into completed jobs, DL cost is added to WIP and MO cost is applied to WIP by multiplying the POR by the actual quantity of the allocation base consumed by each job. When jobs are completed, their costs are transferred from WIP to Finished Goods Inventory

Know what residual income is and how to calculate it

Residual income = Net operating income - (average operating assets x minimum required rate of return) Residual income: net operating income that an investment center earns above the minimum return on its operating assets

Know the order of the budgets

Sales budget - production budget - DM budget (including schedule of expected cash disbursements for purchase of materials) - DL budget - MO budget - Ending finished goods inventory budget - Selling and administrative expense budget - cash budget - budgeted income statement - budgeted balance sheet

Understand what a segment margin is and how its calculated, and how common expenses are used to obtain an overall profit of a company when they have more than one division

Segment margin: Obtained by deducting traceable fixed costs of a segment from the segment's CM, represents the margin available after a segment has covered all its own costs, BEST GAUGE OF LONG-RUN PROFITABILITY BECAUSE IT INCLUDES ONLY THOSE COSTS THAT ARE CAUSED BY THE SEGMENT Common expenses: fixed cost that supports the operations of more than one segment, but is not traceable in whole or in part to any one segment

Non-manufacturing costs

Selling costs, administrative costs

Conversion costs

Sum of direct labor and manufacturing overhead Used to describe DL and MO because these costs are incurred to CONVERT DM into finished products

Know the different activity levels of ABC

Unit-level: Performed each time a unit is produced (providing power to run processing equipment) Batch-level: Performed each time a batch is handled or processed, regardless of how many units are in the batch (placing purchase orders, setting up equipment, arranging for shipments) Product-level: Relate to specific products and must be carried out regardless of how many batches or units of a product is produced or sold (designing a product, advertising a product) Customer-level: Relate to specific customers (sales calls, catalogs mailing) Organization-sustaining: Carried out regardless of which products are produced, how many batches are run, or how many units are made (cleaning executive offices, providing a computer network, arranging for loans)