beginning balance + additions to inventory = ending balance + withdrawals from inventory
Schedule of Cost of Goods Manufactured
Raw MaterialsBeginning raw materials + Raw materials purchased = Raw Materials available for use in production - Ending raw materials inventory = Raw Materials used in production
Manufacturing CostsDirect Materials + Direct Labor + Manufacturing Overhead = Total Manufacturing costs
Work in ProcessBeg. work in process inventory + Total Mfg. cost = Total Work in process for the period - Ending work in process inventory = Cost of Goods Manufactured
COST OF GOODS SOLD
WORK IN PROCESSBeg Work in process Inventory + Total Mfg costs = Total work in process for the period - Ending work in process inventory = Cost of Goods Manufactured
FINISHED GOODSBeg. Finished goods inventory + Cost of Goods Manufactured = Cost of Goods Available for Sale - Ending finished goods inventory = Cost of Goods Sold
Identify the 3 basic manufacturing cost categories
Direct Materials, Direct Labor, Manufacturing Overhead
Define Direct Materials and give examples
Raw materials that become an integral part of the product and that can be conveniently traced directly to it.
Ex. Radio installed in a car
Direct Labor and ex.
labor costs that can be easily traced to individual units of product.
Ex. Wages paid to automobile assembly workers
Manufacturing Overhead and ex.
costs cannot be traced directly to specific units produced
ex. Indirect Materials
Materials used to support the production process. Examples: Lubricants and cleaning supplies used in the automobile assembly plant.
ex. direct materials= Wages paid to employees who are not directly involved in production work. Examples: Maintenance workers, janitors and security guards.
What are the two NonManufacturing costs
Selling costs = Costs necessary to get the order and deliver the product
Administrative costs = All executive, organizational, and clerical costs.
Example of Product Costs
Rent on equipment used in the factory, Lubricants used for machine maintenance, Soap and paper towels used by factory workers at the end of a shift. Factory supervisors' salaries, Heat, water, and power consumed in the factory,Manufacturing equipment depreciation. Direct materials costs.
Electrical costs to light the production facility.
Example of Period costs
Depreciation on salespersons' cars. Salaries of personnel who work in the finished goods warehouse. Advertising costs. The wages of the receptionist in the administrative offices.Property taxes on corporate headquarters.Sales commissions
Variable cost =
Total variable costs change when activity changes. Variable Cost per unit remains the same over wide ranges of activity
Ex. 1.Merchandising companies – cost of goods sold. 2.Manufacturing companies – direct materials, direct labor, and variable overhead. 3.Merchandising and manufacturing companies – commissions, shipping costs, and clerical costs such as invoicing. 4.Service companies – supplies, travel, and clerical.
Total fixed costs remain unchanged when activity changes. Avg fixed cost per unit goes down as activity level goes up.Ex. CommittedLong-term, cannot be significantly reduced in the short-term.--
Examples Depreciation on Buildings and Equipment and Real Estate Taxes. Discretionary May be altered in the short-term by current managerial decisions-- Examples Advertising and Research and Development
Sales = Quantity Sold (Q) x Selling Price Per Unit (P)
Variable Expenses= (Q) x Variable Expenses per unit (V)
Profit= (QxP - QxV) - Fixed Expenses
Contribution margin Ration
The CM ratio is calculated by dividing the total contribution margin by total sales.
Preparing a CVP Graph
1.Draw a line parallel to the volume axis to represent total fixed expense. 2.Choose some volume of unit sales and plot the point representing total expense (fixed and variable) at the sales volume you have selected. 3. Again choose some sales volume and plot the point representing total sales dollars at the activity level you have selected
Target Profit Analysis
Two ways to find the Target profit by The Equation forumula= Profit = Unit CM × Q – Fixed expenses
The Formula Method= Unit sales to attainthe target profit= (Target profit + Fixed expenses) / CM per unit
Break Even in Unit Sales Using both equations
Equation Method Profits = Unit CM × Q – Fixed expenses *Profits are zero at the break-even point.Forumula Method Unit sales to break even= Fixed expenses /CM per unit
Break Even in Dollar Sales using both forumulas
Equation Method Profit = CM ratio × Sales – Fixed expenses (solve for sales)
Forumula Method Dollar sales tobreak even= Fixed expenses / CM ratio
Margin of Safety in Dollars
is the excess of budgeted (or actual) sales over the break-even volume of sales.
Margin of safety in dollars = Total sales - Break-even sales
is a measure of how sensitive net operating income is to percentage changes in sales. It is a measure, at any given level of sales, of how a percentage change in sales volume will affect profits.
Degree of operating leverage= Contribution margin / Net operating income
Using the degree of operating leverage, estimate the impact on net operating income of an increase in sales.
Multiply the percentage being raised by the operating leverage to get the percent increase in profits