Standard costs and variances

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Standard Costs and Variances

Chapter 10

PowerPoint Authors:

Susan Coomer Galbreath, Ph.D., CPA

Charles W. Caldwell, D.B.A., CMA

Jon A. Booker, Ph.D., CPA, CIA

Cynthia J. Rooney, Ph.D., CPA

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Standard Costs-1

Standards are benchmarks or “norms” for measuring performance. In managerial accounting,

two types of standards are commonly used.

Quantity standards specify how much of an input should be used to make a product or provide a service.

Price standards specify how much should be paid for each unit of the input.

Examples: Firestone, Sears, McDonald’s, hospitals,

construction, and manufacturing companies.

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A standard is a benchmark or “norm” for measuring performance. In managerial accounting, two types of standards are commonly used by manufacturing, service, food, and not-for-profit organizations:

Quantity standards specify how much of an input should be used to make a product or provide a service. For example:

Auto service centers like Firestone and Sears set labor time standards for the completion of work tasks.

Fast-food outlets such as McDonald’s have exacting standards for the quantity of meat going into a sandwich.

Price standards specify how much should be paid for each unit of the input. For example:

Hospitals have standard costs for food, laundry, and other items.

Home construction companies have standard labor costs that they apply to sub-contractors such as framers, roofers, and electricians.

Manufacturing companies often have highly developed standard costing systems that establish quantity and price standards for each separate product’s material, labor, and overhead inputs. These standards are listed on a standard cost card.

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Hanson Inc. has the following direct material standard to manufacture one Zippy:

1.5 pounds per Zippy at $4.00 per pound

Actual: Last week, 1,700 pounds of material were purchased and used to make 1,000 Zippies. The material cost a total of $6,630.

Quick Check Material-1

BOARD: Price & Quantity

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In this example, the company produces a Zippy. The direct materials standard calls for 1.5 pounds per Zippy at $4.00 per pound. Last week, Hanson purchased and used 1,700 pounds of material to produce 1,000 Zippies. The 1,700 pounds of material cost a total of $6,630. Now, we will see several questions based on the information on this screen. You may wish to take some notes to use as you answer the questions. Try to answer each question before advancing to the solution.

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Hanson Inc. has the following material standard to manufacture one Zippy:

1.5 pounds per Zippy at $4.00 per pound

Last week, 2,800 pounds of material were purchased at a total cost of $10,920, and 1,700 pounds were used to make 1,000 Zippies.

Quick Check Material-2 Continued

BOARD: Price variance [Material price variance at Purchase NOT at USE] & Quantity

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Let’s extend the Hanson example by increasing the quantity of material purchased to 2,800 pounds at a total cost of $10,920. All other information is the same as before.

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Hanson Inc. has the following direct labor standard to manufacture one Zippy:

1.5 standard hours per Zippy at $12.00 per direct labor hour

ACTUAL: Last week, 1,550 direct labor hours were worked at a total labor cost of $18,910 to make 1,000 Zippies.

Quick Check LABOR [VOH later]

BOARD: Rate & Efficiency [Qty]

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Let’s return to the Hanson Company and compute labor variances.

The direct labor standard to produce each Zippy is 1.5 hours at $12.00 per hour. Last week, it took 1,550 direct labor hours to produce 1,000 Zippies, and the total labor cost was $18,910.

Next, we will see several questions based on the information on this screen. Again, you may wish to take some notes to use as you answer the questions. Also, just as you did with the material variance questions, try to answer each question before advancing to the solution.

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Standard Costs-2

Direct Material

Deviations [Variances/Differences]

from Standards deemed significant are brought to the attention of management, a practice known as management by exception.

Type of Product Cost

Amount

Direct Labor

Manufacturing Overhead

Standard

Management corrective action

Manage by correction of significant controllable Variances

McGraw-Hill/Irwin

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Management by exception is a system of management in which standards are set for various operating activities, with actual results compared to these standards. Any deviations that are deemed significant are brought to the attention of management as “exceptions.”

This chapter applies the management by exception principle to quantity and price standards with an emphasis on manufacturing applications.

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Setting Standard Costs-3

Should we use ideal standards that require employees to work at 100 percent peak efficiency?

Process Engineer

Managerial Accountant

I recommend using practical standards that are currently attainable with improvement through attainable effort.

Standards should include performance improvement

In 20x1 actual efficiency @ 86% = 1.22 hrs. unit

for 20x2 set std. @ 1.18 hrs. unit 90% [practical]

or @ 1.04 hrs. unit 100%. [Ideal]

McGraw-Hill/Irwin

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Standards tend to fall into one of two categories:

Ideal standards can only be attained under the best of circumstances. They allow for no work interruptions and they require employees to work at 100% peak efficiency all of the time.

Practical standards are tight, but attainable. They allow for normal machine downtime and employee rest periods and can be attained through reasonable, highly efficient efforts of the average worker. Practical standards can also be used for forecasting cash flows and in planning inventory.

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Accountants, engineers, supply chain/purchasing agents, and production managers combine efforts to set standards that encourage MORE efficient future operations.

Setting Standard Product Costs-4

McGraw-Hill/Irwin

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Setting price and quantity standards requires the combined expertise of everyone who has responsibility for purchasing and using inputs. In a manufacturing setting, this might include accountants, engineers, purchasing managers, production supervisors, line managers, and production workers.

Standards should be designed to encourage efficient future operations, not just a repetition of past inefficient operations.

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Six sigma = 6 Std. deviations

Six Sigma advocates have sought to eliminate all defects and waste, rather than continually build them into standards.

As a result allowances for waste and spoilage that are built into standards should be reduced over time.

'Long Term Yield' (basically the percentage of successful outputs or operations) %	Defects Per Million Opportunities (DPMO)	'Processs Sigma'
99.99966	3.4	6
99.98	233	5
99.4	6,210	4
93.3	66,807	3
69.1	308,538	2
30.9	691,462	1

3 defects per million

Setting Standards-5

McGraw-Hill/Irwin

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Six Sigma advocates argue that waste and spoilage should not be tolerated. If allowances for waste and spoilage are built into the standard quantity, the level of those allowances should be reduced over time.

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Variance Analysis Cycle

Establish standards then Prepare standard cost performance reporting [1]

Analyze variances [2]

Begin

Identify questions [3]

Receive explanations [4]

Take corrective actions [5]

Conduct next period’s operations [6]

McGraw-Hill/Irwin

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The variance analysis cycle is a continuous process used to identify and solve problems:

The cycle begins with the preparation of standard cost performance reports in the accounting department.

These reports highlight variances that are differences between actual results and what should have occurred according to standards.

The Variances raise questions such as:

Why did this variance occur?

Why is this variance larger than it was last period?

The significant variances are investigated to discover their root causes.

Corrective actions are taken.

Next period’s operations are carried out and the process is repeated.

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Setting Direct Material Standards-1

Price Standards

Summarized in a Bill of Materials

ENGINEERING.

Final, delivered cost of materials, net of discounts.

SUPPLY CHAIN—RM

HR for DL

Quantity Standards

Excel 1

McGraw-Hill/Irwin

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The standard price per unit for direct materials should reflect the final, delivered cost of the materials, net of any discounts taken.

The standard quantity per unit for direct materials should reflect the amount of material required for each unit of finished product, as well as an allowance for unavoidable waste, spoilage, and other normal inefficiencies.

A bill of materials is a list that shows the quantity of each type of material in a unit of finished product.

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Price and Quantity Standards: MATERIALS

Price and quantity standards are determined separately for two reasons:

The Supply Chain [purchasing] manager is responsible for raw material purchase prices and the Production manager is responsible for the quantity of raw material used [per unit & total]. [Different Individuals responsible - Responsibility Acctg.]

The buying and using activities occur at different times. Raw material are purchased in advance of use & may be held in inventory for a period of time before being used in production.

Using a Std. Cost system: when you buy allows you recognize price variance at time of receipt: MATERIALS

McGraw-Hill/Irwin

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Price and quantity standards are determined separately for two reasons:

Different managers are usually responsible for buying and for using inputs. For example: The purchasing manager is responsible for raw material purchase prices and the production manager is responsible for the quantity of raw material used.

The buying and using activities occur at different points in time. For example: Raw material purchases may be held in inventory for a period of time before being used in production.

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McGraw-Hill/Irwin

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Rate* Standards

Often a single rate is used that reflects the mix of wages earned.

$13.25 std. DL rate

Time Standards

Use time and motion studies for each labor operation. ENGINEERING adjusted for practical efficiency

3.2 Min. of DL per unit

* The Price of labor

Excel 2

Setting Direct Labor Standards

McGraw-Hill/Irwin

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The standard rate per hour for direct labor includes not only wages earned but also fringe benefits and other labor costs. Many companies prepare a single rate for all employees within a department that reflects the “mix” of wage rates earned.

The standard hours per unit reflects the labor hours required to complete one unit of product. Standards can be determined by using available references that estimate the time needed to perform a given task, or by relying on time and motion studies.

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Setting Direct Labor Standards

Use time and motion studies [Process Engineering] for each labor operation.

then

Ideal or Practical Std.

Standard Hours per Unit

Often a single weighted average

rate is used

that reflects the mix of

wages earned.

Planned P/R

analysis

Standard Rate per Hour

McGraw-Hill/Irwin

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Std.

Cost

McGraw-Hill/Irwin

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Setting Variable Manufacturing Overhead [VOH] Standards

Rate Standards

The rate is the variable portion of the predetermined overhead rate.

Quantity Standards

The quantity is the activity in the allocation base [Driver] for predetermined overhead.

Hrs./Machine Hrs./RM value/ per unit/ …

Var. OH @ $28/DL hr. with all benefits [rate]

Project 280,000 DL hrs. [rate driver] for Yr. = $ per DL Hr.

Qty. per unit =

DL Hrs.in example

McGraw-Hill/Irwin

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The price standard for variable manufacturing overhead comes from the variable portion of the predetermined overhead rate.

The quantity standard for variable manufacturing overhead is expressed in either direct labor hours or machine hours depending on which is used as the allocation base in the predetermined overhead rate.

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A General Model for Variance Analysis: Materials

Variance Analysis

Price* Variance

Difference between actual price and standard price

Quantity Variance

Difference between actual quantity and standard quantity

* for Labor aka Rate Variance

McGraw-Hill/Irwin

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Differences between standard prices and actual prices and standard quantities and actual quantities are called variances. The act of computing and interpreting variances is called variance analysis.

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Variance Analysis

Materials price variance Labor rate variance VOH rate variance

Materials quantity variance

Labor Efficiency

[or Productivity]

variance

VOH efficiency variance

A General Model for Variance Analysis: Labor

Price* Variance

Quantity[Usage]

Variance

* for Labor aka Rate Variance

McGraw-Hill/Irwin

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Price and quantity variances can be computed for all three variable cost elements – direct materials, direct labor, and variable manufacturing overhead – even though the variances have different names as shown.

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A General Model for Variance Analysis-1

Quantity Variance (2) – (1)

Price Variance (3) – (2)

(1)

Standard Quantity Allowed for Actual Output, at Standard Price (SQ × SP)

(2) Actual Quantity of Input, at Standard Price (AQ × SP)

(3) Actual Quantity of Input, at Actual Price (AQ × AP)

Spending Variance (3) – (1)

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Although quantity and price variances are known by different names, they are computed exactly the same way (as shown on this slide) for direct materials, direct labor, and variable manufacturing overhead.

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Examples of Types of Quantity Variances

Quantity Variances:

Rework

McGraw-Hill/Irwin

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A General Model for Variance Analysis-2

Actual quantity is the amount of direct materials, direct labor, and variable manufacturing overhead actually used.

Quantity Variance (2) – (1)

Price Variance (3) – (2)

(1)

Standard Quantity Allowed for Actual Output, at Standard Price (SQ × SP)

(2) Actual Quantity of Input, at Standard Price (AQ × SP)

(3) Actual Quantity of Input, at Actual Price (AQ × AP)

Spending Variance (3) – (1)

Std.Q ea.@ Std. prices @ Act. made. = ΣStd.$s

Act. @ Act.. = Act..

In Std Cost System, Price variance on materials is recognized when purchased

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The actual quantity represents the actual amount of direct materials, direct labor, and variable manufacturing overhead used.

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A General Model for Variance Analysis-3

Standard quantity is the standard quantity allowed for the actual output of the period. [Std.Q ea. X Act. Q made]

Quantity Variance (2) – (1)

Price Variance (3) – (2)

(1)

Standard Quantity Allowed for Actual Output, at Standard Price (SQ × SP)

(2) Actual Quantity of Input, at Standard Price (AQ × SP)

(3) Actual Quantity of Input, at Actual Price (AQ × AP)

Spending Variance (3) – (1)

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The standard quantity represents the standard quantity allowed for the actual output of the period.

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A General Model for Variance Analysis-4

Actual price is the amount actually paid for the input used. Act. Qty.@ Act.Unit Price

Quantity Variance (2) – (1)

Price Variance (3) – (2)

(1)

Standard Quantity Allowed for Actual Output, at Standard Price (SQ × SP)

(2) Actual Quantity of Input, at Standard Price (AQ × SP)

(3) Actual Quantity of Input, at Actual Price (AQ × AP)

Spending Variance (3) – (1)

Put Std. Price into Inv. @ purchase; recognize Price Variance

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The actual price represents the actual amount paid for the input used.

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A General Model for Variance Analysis-5

Quantity Variance (2) – (1)

Price Variance (3) – (2)

(1)

Standard Quantity Allowed for Actual Output, at Standard Price (SQ × SP)

(2) Actual Quantity of Input, at Standard Price (AQ × SP)

(3) Actual Quantity of Input, at Actual Price (AQ × AP)

Spending Variance (3) – (1)

Standard price is the amount that should have been paid @ std. for the input used.

∆ Qty. std. & Actual used valued @ Std. Price

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The standard price represents the amount that should have been paid for the input used.

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A General Model for Variance Analysis-6

(AQ × AP) – (AQ × SP) (AQ × SP) – (SQ × SP)

AQ = Actual Quantity SP = Standard Price AP = Actual Price SQ = Standard Quantity

Price Variance

Quantity Variance

Actual Quantity Actual Quantity Standard Quantity × × × Actual Price Standard Price Standard Price

∆ Price X Actual Qty

∆ Qty X Std. Price

McGraw-Hill/Irwin

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In equation form, price and quantity variances are calculated as shown.

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A General Model for Variance Analysis-7 Summarized

Price Variance: ∆ Price [cost] X actual quantity

Price Variance may be called Purchase price variance or PPV [Materials], Rate [Labor] , Spending [Var. Overhead]

Quantity Variance: ∆ Quantity X Standard price [cost}

Quantity variances may be called Volume [Overhead], Efficiency [Labor], Usage [Materials]

McGraw-Hill/Irwin

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Glacier Peak Outfitters has the following direct material standard for the fiberfill in its mountain parka.

0.1 kg. of fiberfill per parka at $5.00 per kg.

Actual: Last month 210 kgs. of fiberfill were purchased and used to make 2,000 parkas. The material cost a total of $1,029.

Material Variances – An Example

BOARD: Price & Quantity

McGraw-Hill/Irwin

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Here’s an example that will give us an opportunity to compute material price and quantity variances.

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Materials Price Variance

Materials Quantity Variance

Production Manager

Supply Chain or

Purchasing Manager

The standard price is used to compute the quantity variance so that the production manager is not held responsible for the purchasing manager’s performance.

Responsibility for Material Variances

McGraw-Hill/Irwin

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The purchasing manager and production manager are usually held responsible for the materials price variance and materials quantity variance, respectively. The standard price is used to compute the quantity variance so that the production manager is not held responsible for the performance of the purchasing manager.

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Materials Variances―An Important Subtlety

The quantity variance is computed only on the quantity used.

The price variance is computed on the entire quantity purchased.

McGraw-Hill/Irwin

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Responsibility for Labor Variances

Production Managers are usually held accountable for labor variances because they can influence the:

Mix of skill levels assigned to work tasks

Production Manager.

Level of employee motivation. [Management Responsibility]

Quality of production Line Supervision.

Quality of training provided to employees.

HR / Production Manager

Bad Standard.

Engineering: Process or Product

Defect in components.

Supply Chain

McGraw-Hill/Irwin

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Labor variances are partially controllable by employees within the Production Department. For example, production managers/supervisors can influence:

The deployment of highly skilled workers and less skilled workers on tasks consistent with their skill levels.

The level of employee motivation within the department.

The quality of production supervision.

The quality of the training provided to the employees.

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I am not responsible for the unfavorable labor efficiency variance!

You purchased cheap material and the

employees were

below qualification

levels so it took more time to process it.

I think it took more time to process the materials because the Eqpmnt. Maintenance Department has poorly maintained your equipment.

Responsibility for Labor Variances

Production Manager

Supply Chain

I am not responsible for the unfavorable labor efficiency variance!

The specs you gave me were met

Human Resources

McGraw-Hill/Irwin

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However, labor variances are not entirely controllable by one person or department. For example:

The Maintenance Department may do a poor job of maintaining production equipment. This may increase the processing time required per unit, thereby causing an unfavorable labor efficiency variance.

The purchasing manager may purchase lower quality raw materials resulting in an unfavorable labor efficiency variance for the production manager.

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Compute the variable manufacturing overhead rate and efficiency variances.

McGraw-Hill/Irwin

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Learning objective number 4 is to compute the variable manufacturing overhead rate and efficiency variances.

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Glacier Peak Outfitters has the following direct variable manufacturing overhead [VOH] labor standard for its mountain parka.

1.2 standard hours per parka at $4.00 per hour

ACTUAL: Last month, employees actually worked 2,500 hours to make 2,000 parkas. Actual variable manufacturing overhead for the month was $10,500.

Variable [VOH] Manufacturing Overhead Variances Example

BOARD: Rate [Spending] & Quantity [Efficiency]

McGraw-Hill/Irwin

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Now that we have studied material and labor variances, let’s take a look a variable manufacturing overhead variances. We will return to Glacier Peak Outfitters to illustrate the computation of variable manufacturing overhead rate and efficiency variances.

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Hanson Inc. has the following variable manufacturing overhead standard to manufacture one Zippy:

1.5 standard hours per Zippy at $3.00 per direct labor hour

Actual: Last week, 1,550 hours were worked to make 1,000 Zippies, and $5,115 was spent for variable manufacturing overhead.

Quick Check VOH

BOARD: Rate [Spending] & Quantity [Efficiency]

McGraw-Hill/Irwin

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Now let’s return to the Hanson company and compute the variable manufacturing overhead variances.

The variable manufacturing overhead standard to produce each Zippy is 1.5 hours at $3.00 per hour. Last week, it took 1,550 hours to produce 1,000 Zippies, and the total variable manufacturing overhead cost was $5,115.

Next, we will see several questions based on the information on this screen. Again, you may wish to take some notes to use as you answer the questions. Also, just as you did with the material and labor variance questions, try to answer each question before advancing to the solution.

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Variance Analysis and Management by Exception

How do I know which variances to investigate?

Larger [controllable] variances, in dollar amount or as a percentage of the standard, are investigated first.

Why Exception via standards?

By analyzing & reducing unfavorable variances process is moved [improved closer to] to standard

McGraw-Hill/Irwin

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All variances are not worth investigating. Methods for highlighting a subset of variances as exceptions include:

Looking at the size of the variance.

Looking at the size of the variance relative to the amount of spending.

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Wait Fav.

Address first -Unfav

A Statistical Control Chart

Variance Measurements

Favorable Limit

Unfavorable Limit

•

Warning signals for investigation

Desired Value

Repeatedly examine & eliminate cause out-lie-ers

This narrows limits; result better std. product

McGraw-Hill/Irwin

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Plotting variance analysis data on a statistical control chart is helpful in variance investigation decisions. Variances are investigated if:

They are unusual relative to the normal level of random fluctuation.

An unusual pattern emerges in the data.

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Integrates

Operating performance with accounting results

Promotes economy and efficiency

Advantages of Standard Costs [I like it !!!!!]

Management by ***exception***

Advantages

Profit/quality

Enhances Responsibility Accounting

McGraw-Hill/Irwin

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Research has shown that a substantial portion of companies in the United Kingdom, Canada, Japan, and the United States use standard cost systems. This is because standard cost systems offer many advantages including:

Standard costs are a key element of the management by exception approach which helps managers focus their attention on the most important issues.

Standards that are viewed as reasonable by employees can serve as benchmarks that promote economy and efficiency.

Standard costs can greatly simplify bookkeeping.

Standard costs fit naturally into a responsibility accounting system.

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Potential Problems

Emphasizing standards may exclude other important objectives

[only if you are a dope].

Favorable variances may be misinterpreted.

Continuous improvement may be more important than meeting standards.

Std. costing analysis is form of continuous

improvement

Invalid assumptions about the relationship between labor cost and output.

Potential Problems with Standard Costs-1

McGraw-Hill/Irwin

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The use of standard costs can also present a number of problems. For example:

Standard cost variance reports are usually prepared on a monthly basis and are often released days or weeks after the end of the month; hence, the information can be outdated.

If variances are misused as a club to negatively reinforce employees, morale may suffer and employees may make dysfunctional decisions.

Labor variances make two important assumptions. First, they assume that the production process is labor-paced; if labor works faster, output will go up. Second, the computations assume that labor is a variable cost. These assumptions are often invalid in today’s automated manufacturing environment where employees are essentially a fixed cost.

In some cases, a “favorable” variance can be as bad or worse than an unfavorable variance.

Excessive emphasis on meeting the standards may overshadow other important objectives such as maintaining and improving quality, on-time delivery, and customer satisfaction.

Just meeting standards may not be sufficient; continual improvement using techniques such as Six Sigma may be necessary to survive in a competitive environment.

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Potential Problems

If variances are misused as a club to negatively reinforce employees, morale may suffer and employees may make dysfunctional decisions.

Standard cost variance reports are usually prepared on a monthly basis and may contain information that is outdated.

Potential Problems with Standard Costs-2

Labor variances assume that the production process is labor-paced and that labor is a variable cost. These assumptions are often valid but sometimes not valid in today’s automated manufacturing environment where employees may essentially be a fixed cost.

Emphasis on negative may impact morale.

McGraw-Hill/Irwin

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Excessive emphasis on meeting the standards may overshadow other important objectives such as maintaining and improving quality, on-time delivery, and customer satisfaction.

In some cases, a “favorable” variance can be as bad or worse than an unfavorable variance.

Just meeting standards may not be sufficient;

may limit opportunity

continuous improvement may be necessary to survive in a competitive environment.

Potential Problems with Standard Costs-3

Potential Problems

McGraw-Hill/Irwin

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Compute delivery cycle time, throughput time, and Manufacturing Cycle Efficiency (MCE).

McGraw-Hill/Irwin

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Learning objective number 5 is to compute delivery cycle time, throughput time, and manufacturing cycle efficiency.

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Delivery Performance Measures-1

Value Added Time = Process [or production or manufacturing] Time = Time to make the product

Non-Value Added Production [or manufacturing] time = time not involved in actual making of product including Wait, Inspection, Move, Downtime, Queuing, and time in factory warehouse before distribution; includes PDF

Throughput Time = Value added process time + non-value added manufacturing time; excludes time from receipt of order to begin process of making = “Manufacturing Cycle Time”

End to end to make Product

McGraw-Hill/Irwin

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Process time is the only value-added time.

Delivery Performance Measures-2

Wait Time*

Process Time + Inspection Time + Move Time + Queue Time

Delivery Cycle Time: End to End except transit

= Wait time + Throughput Time=receipt of Order to shipment of goods

Order Received

Production Started

Goods Shipped

Throughput Time

* Time from receipt of order to begin process of making or fulfilling order if from FG

McGraw-Hill/Irwin

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Delivery cycle time is the elapsed time from when a customer order is received to when the completed order is shipped.

Throughput (manufacturing cycle) time is the amount of time required to turn raw materials into completed products. This includes process time, inspection time, move time, and queue time. Process time is the only value-added activity of the four times mentioned.

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Delivery Performance Measures-3

Manufacturing

Cycle

Efficiency

Value-added time [Throughput] Manufacturing cycle time

Exclude Wait Time

Manufacturing

Cycle

Efficiency

% time making product

to Throughput time

McGraw-Hill/Irwin

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Quick Check 

A TQM team at Narton Corp has recorded the following average times for production:

Wait 3.0 days Move 0.5 days

Inspection 0.4 days Queue 9.3 days

Process 0.2 days

What is the throughput time?

a. 10.4 days.

b. 0.2 days.

c. 4.1 days.

d. 13.4 days.

Asking for Throughput – No Wait

DCT [Delivery Cycle Time] is End-to-End

How long to get an order out the door if produced when order received.

McGraw-Hill/Irwin

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Here’s your first question on delivery performance measures: What is the throughput time?

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Quick Check 

A TQM team at Narton Corp has recorded the following average times for production:

Wait 3.0 days Move 0.5 days

Inspection 0.4 days Queue 9.3 days

Process 0.2 days

What is the Manufacturing Cycle Efficiency (MCE)?

a. 50.0%.

b. 1.9%.

c. 52.0%.

d. 5.1%.

BOARD: MCE

McGraw-Hill/Irwin

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Here’s your second question on delivery performance measures: What is the manufacturing cycle efficiency?

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Quick Check 

A TQM team at Narton Corp has recorded the following average times for production:

Wait 3.0 days Move 0.5 days

Inspection 0.4 days Queue 9.3 days

Process 0.2 days

What is the delivery cycle time (DCT)?

a. 0.5 days.

b. 0.7 days.

c. 13.4 days.

d. 10.4 days.

BOARD: end-to-end

McGraw-Hill/Irwin

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Here’s your third question on delivery performance measures: What is the delivery cycle time?

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Capitalized Variances

While capitalizing variances may not be done for Management Accounting [not GAAP], if the variances are material then portion/all of the variances may be capitalized into Inventory for Financial Reporting [GAAP/SEC]

Materiality: ..\..\..\Teaching aids\Other\Materiality-Error correction.ppt

Slide 4

McGraw-Hill/Irwin

Slide ‹#›

Excel 3,4 Appendix A - OH Variances, =============== Excel 5-Journal Entries / Capitalize Variances

McGraw-Hill/Irwin

Slide ‹#›

S*T*O*P

McGraw-Hill/Irwin

Slide ‹#›

HW 1

No Fxd Overhead

Just do the Variable Overhead

McGraw-Hill/Irwin

Slide ‹#›

HW 2

Material

& Labor

McGraw-Hill/Irwin

Slide ‹#›

HW 3

McGraw-Hill/Irwin

Slide ‹#›

Appendix 10A

Predetermined Overhead Rates and Overhead Analysis in a Standard Costing System

PowerPoint Authors:

Susan Coomer Galbreath, Ph.D., CPA

Charles W. Caldwell, D.B.A., CMA

Jon A. Booker, Ph.D., CPA, CIA

Cynthia J. Rooney, Ph.D., CPA

10A-‹#›

Appendix 10A: Predetermined Overhead Rates and Overhead Analysis in a Standard Costing System

11-‹#›

Learning Objective 6

(Appendix 10A)

Compute and interpret the fixed overhead budget and volume variances.

McGraw-Hill/Irwin

Slide ‹#›

Learning objective number 6 is to compute and interpret the fixed overhead budget and volume variances.

11-‹#›

Budget or Spendng variance

Fixed Overhead Budget Variance

Actual Fixed Overhead

Fixed Overhead Applied

Budgeted Fixed Overhead

Budget variance

Budgeted fixed overhead

Actual fixed overhead

–

Volume variance

Fixed overhead applied to work in process

Budgeted fixed overhead

–

McGraw-Hill/Irwin

Slide ‹#›

Here we see the general model for computing fixed overhead variances. The budget variance is the actual fixed manufacturing overhead cost minus the budgeted fixed manufacturing overhead.

11-‹#›

FOH = Fixed portion of the predetermined overhead rate FOH basis = Denominator units DL Hrs. machine hrs.,

Std Qty.= basis units allowed [units @ std] for actual output

SH × FR

DH × FR

Fixed Overhead Volume Variance

Actual Fixed Overhead

Fixed Overhead Applied

Budgeted Fixed Overhead

Volume variance

EXCEL 3

McGraw-Hill/Irwin

Slide ‹#›

The volume variance can also be computed by multiplying the fixed portion of the predetermined overhead rate times the difference between denominator hours and standard hours. The equation on the prior slide and this equation result in identical answers. Both variance computations will be demonstrated in the forthcoming example.

11-‹#›

Computing Fixed Overhead Variances

EXCEL

McGraw-Hill/Irwin

Slide ‹#›

ColaCo’s production and machine-hour data is shown on your screen.

11-‹#›

Computing Fixed Overhead Variances

EXCEL

McGraw-Hill/Irwin

Slide ‹#›

ColaCo’s overhead production costs are presented here.

11-‹#›

Graphic Analysis of Fixed Overhead Variances

Machine-hours (000)

Budget $270,000

Denominator hours

Fixed overhead applied [absorption] at

$3.00 per standard hour

As fixed cost

is applied

as variable

Generating

a volume

variance

McGraw-Hill/Irwin

Slide ‹#›

The vertical axis is used to graph fixed overhead cost. The first cost that ColaCo would plot on this axis is $270,000 of budgeted fixed overhead.

The horizontal axis is used to graph the volume of activity. The first activity level that ColaCo would plot is its denominator activity level of 90,000 machine hours. The linear manner in which fixed overhead is applied to products is depicted by drawing a straight line from the origin to the intersection of the budgeted fixed overhead ($270,000) and the denominator activity (90,000 hours). The slope of this line indicates that fixed overhead is applied at a rate of $3.00 per machine hour.

11-‹#›

Graphic Analysis of Fixed Overhead Variances

Actual $280,000

Machine-hours (000)

Budget $270,000

Denominator hours

Fixed overhead applied at

$3.00 per standard hour

Budget Variance 10,000 U

{

McGraw-Hill/Irwin

Slide ‹#›

Next, plot the actual amount of fixed overhead costs on the vertical axis. The broken horizontal line above the budgeted fixed overhead represents the $280,000 of actual fixed manufacturing overhead. The vertical distance between the budgeted fixed overhead line and the actual fixed overhead line represents the fixed overhead budget variance of $10,000. Since the actual fixed overhead is greater than the budgeted fixed overhead, the fixed overhead budget variance is unfavorable.

11-‹#›

Actual $280,000

Applied $252,000

Machine-hours (000)

Budget $270,000

Graphic Analysis of Fixed Overhead Variances

Standard hours

Fixed overhead applied at

$3.00 per standard hour

Denominator hours

Budget Variance 10,000 U

Volume Variance 18,000 U

{

McGraw-Hill/Irwin

Slide ‹#›

Finally, identify the standard hours allowed for the actual level of output (84,000 hours) on the horizontal axis. Draw a vertical line from this activity level until it intersects the sloped line that depicts the fixed overhead applied to products. From this point, draw a horizontal line representing the applied fixed overhead ($252,000).

The vertical distance between the budgeted fixed overhead line and the applied fixed overhead line represents the fixed overhead volume variance of $18,000. Since the budgeted fixed overhead is greater than the applied fixed overhead, the volume variance is unfavorable.

11-‹#›

Reconciling Overhead Variances and Underapplied or Overapplied Overhead aka Underabsorbed or Overabsorbed

In a standard cost system:

Unfavorable variances are equivalent to underapplied overhead.

Favorable variances are equivalent to overapplied overhead.

The sum of the overhead variances equals the under- or overapplied overhead cost for the period.

McGraw-Hill/Irwin

Slide ‹#›

In a standard cost system, the sum of the overhead variances equals the under-or overapplied overhead cost for the period. Unfavorable variances are equivalent to underapplied overhead. Favorable variances are equivalent to overapplied overhead.

11-‹#›

Reconciling Overhead Variances and Underapplied or Overapplied Overhead

McGraw-Hill/Irwin

Slide ‹#›

This slide shows how ColaCo’s underapplied or overapplied is computed. The manufacturing overhead is $44,000 underapplied.

11-‹#›

Computing the Variable Overhead Variances

Variable manufacturing overhead rate variance

VMRV = (AH × AR) – (AH × SR)

= $100,000 – (88,000 hours × $1.00 per hour)

= $12,000 unfavorable

EXCEL 4

McGraw-Hill/Irwin

Slide ‹#›

ColaCo’s variable overhead rate variance ($12,000 U) is computed as shown on this slide.

11-‹#›

Computing the Variable Overhead Variances

Variable manufacturing overhead efficiency variance

VMEV = (AH × SR) – (SH × SR)

= $88,000 – (84,000 hours × $1.00 per hour)

= $4,000 unfavorable

EXCEL 4

McGraw-Hill/Irwin

Slide ‹#›

ColaCo’s variable overhead efficiency variance ($4,000 U) is computed as shown on this slide.

11-‹#›

Computing the Sum of All Variances

EXCEL

McGraw-Hill/Irwin

Slide ‹#›

The sum of the variable and fixed overhead variances is $44,000 U. Notice, the sum of the variances equals the amount of ColaCo’s underapplied overhead.

11-‹#›

Journal Entries to Record Variances

Appendix 11B

EXCEL 5

Appendix 11B: General Ledger Entries to Record Variances

11-‹#›

Journal Entries to Record Variances

Appendix 10B

Journal Entries to Record Variances

PowerPoint Authors:

Susan Coomer Galbreath, Ph.D., CPA

Charles W. Caldwell, D.B.A., CMA

Jon A. Booker, Ph.D., CPA, CIA

Cynthia J. Rooney, Ph.D., CPA

10B-‹#›

Appendix 10B: General Ledger Entries to Record Variances

11-‹#›

Learning Objective 7

(Appendix 10B)

Prepare journal entries to record standard costs and variances.

McGraw-Hill/Irwin

Slide ‹#›

Learning objective number 7 is to prepare journal entries to record standard costs and variances.

11-‹#›

Appendix 11B Journal Entries to Record Variances

We will use information from the Glacier Peak Outfitters example presented earlier in the chapter to illustrate journal entries for standard cost variances. Recall the following:

Material

AQ × AP = $1,029 AQ × SP = $1,050 SQ × SP = $1,000 MPV = $21 F MQV = $50 U

Labor

AH × AR = $26,250 AH × SR = $25,000 SH × SR = $24,000 LRV = $1,250 U LEV = $1,000 U

Now, let’s prepare the entries to record the labor and material variances.

McGraw-Hill/Irwin

Slide ‹#›

Standard costs and variance analysis can be used without formal journal entries. However, recording inventories and cost of goods sold using standard costs simplifies bookkeeping since it eliminates the need to keep track of the actual costs of each unit.

We will use the information from the Glacier Peak Outfitters example presented earlier in the chapter to illustrate journal entries for labor and material variances. A summary of the standard cost variance computations for Glacier Peak Outfitters’ labor and material variances is shown on your screen.

11-‹#›

Appendix 11B Recording Material Variances

McGraw-Hill/Irwin

Slide ‹#›

The first entry is to record the purchase of direct materials. A favorable materials price variance is recorded with a credit.

The second entry is to record the use of material. The use of material involves a transfer of material from the asset account raw materials inventory to the asset account work-in-process inventory. An unfavorable materials quantity variance is recorded with a debit.

11-‹#›

Appendix 11B Recording Labor Variances

McGraw-Hill/Irwin

Slide ‹#›

Here we see the entry for the incurrence of direct labor. Both labor variances are unfavorable and are recorded with debits.

11-‹#›

Cost Flows in a Standard Cost System

Inventories are recorded at standard cost.

Variances are recorded as follows:

Favorable variances are credits, representing savings in production costs.

Unfavorable variances are debits, representing excess production costs.

Standard cost variances are usually closed out to cost of goods sold.

Unfavorable variances increase cost of goods sold.

Favorable variances decrease cost of goods sold.

McGraw-Hill/Irwin

Slide ‹#›

The entries into the various accounts are made at standard cost – not actual cost. The differences between actual and standard costs are entered into special accounts that accumulate the various standard cost variances. The standard cost variance accounts are usually closed out to Cost of Goods Sold at the end of the period. Unfavorable variances increase Cost of Goods Sold, and favorable variances decrease Cost of Goods Sold.

11-‹#›

End of Chapter 10

10B-‹#›

End of Chapter 10.

11-‹#›

Excel 1

Each

per X33

Ea.subass'y

Table

Bill of Material: X33 TableWasteSubassy.Std.MaterialMaterial

ScrapStd.TotalStd.Std.Std.

P/NItemUMQtyAllowUsageUsagePriceCost ea.Cost ea.

AA2Top Assemblyunit10%11 in X33

a77Metal frameunit10.50%1.0051.00511.00$ 11.055$ 11.055$

l22Laminate coversq.'102%10.20010.2000.75$ 7.650$ 7.650$

s44side trimlinear ft.9.24%9.5689.5680.22$ 2.105$ 2.105$

t51top coversq.'101%10.10010.1004.25$ 42.925$ 42.925$

LL2Leg assembliesunit4044 in X33

M98Metal tubinglinear ft.36%3.18012.7201.89$ 6.010$ 24.041$ 4 in X33

FF8end tabsunit10.40%1.0044.0160.04$ 0.040$ 0.161$

Std.

Total87.936$ Cost

Projects

Accounting Project
Basic Accounting
1	History of company [ no cut & paste; 1 page maximum]
2	Biography of CEO
3	Biography of CFO
4	Product listing [1 page maximum]
5	Sales by geographic area
6	Sales by Segment
7	Company Code of Ethics [1 page maximum]
8	Six recent news stories [ No cut & paste] summarized into a paragrapht each
9	Most current: Statements of Income 2 years
10	Most current: Statement of Stockholders' Equity or Retained Earnings
11	Most current: Statement of Cash Flows
12	Most current: Balance Sheet - 2 years
13	Statement of Comprehensive Income
14	Vertical analysis of Income statement
15	Horizontal analysis of Balance Sheet
16	Ratios:
15a	Net Income %	15e	Inventory turnover
15b	Working Capital $	15f	Return on Total Assets
15c	Current ratio	15g	Book Value per share
15d	Accts. Receivable Turns	15h	Debt to equity ratio
17	Market Analysts summary of Company
18	Evaluatative statement: Good/ Bad inveatment & why
Cover Page for Project:
Course Name:
"PE: ________" enter date course ends
Instructor Name:
Space
Space
Space
Company Names[s]
Prepared by: student name
Date submitted

Show the Item # and item description in submission; for news stories show date and source

Companies Sp2017

Fortune 500, June 2016	Revenue
Financial	Rank	Company	$millions	G	K
Financial	93	3M	$30,274
Financial	46	Aetna	$60,337
X	49	AIG	$58,327
X	81	Allstate	$35,653
X	36	Alphabet	$74,989
X	18	Amazon.com	$107,006
X	67	American Airlines Group	$40,990
X	85	American Express	$34,441
X	12	AmerisourceBergen	$135,962
X	33	Anthem	$79,157
X	3	Apple	$233,715
X	41	Archer Daniels Midland	$67,702
X	10	AT&T	$146,801
X	26	Bank of America Corp.	$93,056
X	4	Berkshire Hathaway	$210,821
X	71	Best Buy	$39,745
X	24	Boeing	$96,114
X	21	Cardinal Health	$102,531
X	59	Caterpillar	$47,011
X	14	Chevron	$131,118
X	84	CHS	$34,582
X	79	Cigna	$37,876
X	54	Cisco Systems	$49,161
X	29	Citigroup	$88,275
X	62	Coca-Cola	$44,294
X	37	Comcast	$74,510
X	90	ConocoPhillips	$30,935
X	15	Costco	$116,199
X	7	CVS Health	$153,290
X	97	Deere	$28,863
X	68	Delta Air Lines	$40,704
X	53	Disney	$52,465
X	56	Dow Chemical	$48,778
X	101	DuPont	$27,940
X	65	Energy Transfer Equity	$42,126
X	95	Exelon	$29,447
X	22	Express Scripts Holding	$101,752
X	2	Exxon Mobil	$246,204
X	16	Fannie Mae	$110,359
X	58	FedEx	$47,453
X	9	Ford Motor	$149,558
X	43	Freddie Mac	$63,491
X	88	General Dynamics	$31,469
X	11	General Electric	$140,389
X	8	General Motors	$152,356
X	86	Gilead Sciences	$32,639
X	74	Goldman Sachs Group	$39,208
X	63	HCA Holdings	$43,591
X	28	Home Depot	$88,519
X	75	Honeywell International	$38,581
X	20	HP	$103,355
X	52	Humana	$54,289
X	31	IBM	$82,461
X	64	Ingram Micro	$43,026
X	51	Intel	$55,355
X	83	INTL FCStone	$34,693
X	23	J.P. Morgan Chase	$101,006
X	39	Johnson & Johnson	$70,074
X	70	Johnson Controls	$40,204
X	17	Kroger	$109,830
X	73	Liberty Mutual Insurance Group	$39,450
X	60	Lockheed Martin	$46,132
X	47	Lowe’s	$59,074
X	42	Marathon Petroleum	$64,566
X	76	Massachusetts Mutual Life Insurance	$38,243
X	5	McKesson	$181,241
X	72	Merck	$39,498
X	40	MetLife	$69,951
X	25	Microsoft	$93,580
X	94	Mondelez International	$29,636
X	78	Morgan Stanley	$37,897
X	69	Nationwide	$40,222
X	61	New York Life Insurance	$45,891
X	91	Nike	$30,601	DEY
X	100	Northwestern Mutual	$28,111
X	100	Northwestern Mutual	$28,111
X	77	Oracle	$38,226
X	44	PepsiCo	$63,056
X	55	Pfizer	$48,851
X	30	Phillips 66	$87,169
X	34	Procter & Gamble	$78,756
X	50	Prudential Financial	$57,119
X	87	Publix Super Markets	$32,619
X	35	State Farm Insurance Cos.	$75,697
X	57	Sysco	$48,681
X	38	Target	$73,785
X	98	Tesoro	$28,150
X	82	TIAA	$35,181
X	99	Time Warner	$28,118
X	89	TJX	$30,945
X	96	Twenty-First Century Fox	$28,987
X	66	Tyson Foods	$41,373
X	80	United Continental Holdings	$37,864
X	45	United Technologies	$61,047
X	6	UnitedHealth Group	$157,107
X	48	UPS	$58,363
X	32	Valero Energy	$81,824
X	13	Verizon	$131,620
X	19	Walgreens Boots Alliance	$103,444
A	1	Walmart	$482,130
X	27	Wells Fargo	$90,033
X	92	World Fuel Services	$30,380

Ch.2 #1

Types of Costs & Expenses	Excel 1
Natural Cost or Expense	Expense by the type of spending
Functional cost or Expense	Expense by function, department or organizational heirarchy
Fixed or Variable Cost or Expense	Varies with sales or production volume or does not
Product or Period Cost or Expense	Part of product cost [CoGS / Inventoriable] or not
Direct or Indirect Cost or Expense	Direct: tracable to a cost object [such as a product or capital project]; Indirect: not tracable may be assignable
Conversion costs	Direct labor & manufacturing overhead [sometimes only variable OH]
Prime costs	Direct materials & direct labor [sometimes varaible fringes on DL]
Common cost	Cost on support to a group of cost objects but not tracable
Tracable costs	Cost directly tracable to cost object
Natural Expenses	Department or	Function
operating	operating	CoGS	distribution
Sales	Admin	Production	Warehouse	Totals:
Salary Expense	25,000	17,000	36,000	9,000	87,000
Wage Expense	16,000	9,000	58,000	12,500	95,500
Production Direct labor	- 0	- 0	115,000	- 0	115,000
Fringe benefit expense	13,000	8,800	74,000	6,400	102,200
Commission expense	7,000	- 0	- 0	- 0	7,000
Advertising expense	9,500	400	750	200	10,850
Building rent expense	3,200	3,600	12,500	4,800	24,100
Equipment lease expense	400	2,300	6,900	2,230	11,830
Office supply expense	1,900	1,400	2,300	600	6,200
Contract labor Expense	- 0	- 0	34,000	3,320	37,320
Travel/entertainment exp.	3,600	450	2,000	300	6,350
Professional services	1,900	2,150	3,200	- 0	7,250
Bank charges/fees	- 0	200	- 0	- 0	200
Depreciation expense	2,200	1,975	44,000	11,000	59,175
Miscellaneous expense	1,400	1,100	3,950	2,160	8,610
Total	85,100	48,375	392,600	52,510	578,585
Sales	Admin	Production	Warehouse
Job
Job AB1	Job AB2	Job AB3	Totals
Salary Expense	12,000	3,000	- 0	15,000
Wage Expense	2,300	6,200	- 0	8,500
Production Direct labor	21,000	23,000	66,000	110,000
Fringe benefit expense	6,500	9,100	2,200	17,800
Commission expense	2,500	- 0	1,300	3,800
Advertising expense	- 0	- 0	- 0	- 0
Building rent expense	- 0	- 0	- 0	- 0
Equipment lease expense	- 0	- 0	2,150	2,150
Office supply expense	- 0	- 0	- 0	- 0
Contract labor Expense	1,500	2,650	11,500	15,650
Travel/entertainment exp.	250	350	600	1,200
Professional services	1,110	850	1,950	3,910
Bank charges/fees	- 0	- 0	- 0	- 0
Depreciation expense	- 0	- 0	- 0	- 0
Miscellaneous expense	875	625	325	1,825
Totals:	48,035	45,775	86,025	179,835
Credit
Accounts Payable
0
0
0
Product cost flows
Manufacturing company	Raw materials	WIP	FG	CoGS
Beginning Raw materials +	100,000
Buy materials +	20,000
Available for use Raw materials =	120,000
Ending Raw materials -	55,000
RM used for Production =	65,000
Beginning WIP +	77,000
Issued to WIP from Raw material inventory +	Direct cost	65,000
Direct labor +	Direct cost	21,000	Conversion cost
Applied overhead [Indirect costs] +	42,000	Conversion cost
Total Manufacturing costs; WIP for Period =	205,000
Ending WIP Inventory -	64,000
COG manufactured; [sent to FG] =	141,000
Beginning FG +	214,000
To FG from WIP; CoG Manufactured +	141,000
CoG Available for Sale =	355,000
Ending FG inventory -	191,000
CoGS =	164,000
Summary	Beginning	Additions	Ending
RW	100,000	20,000	55,000
WIP	77,000	21,000	64,000
FG	214,000	42,000	191,000
391,000	83,000	310,000	164,000
'+'	'+'	'-'	'='

Ch.2A

Income statements: Chapter 2	Excel 2	Excel 1
CoGS = Product cost // GAAP	Product cost flows
Month: July	Var. Income Statement	Comment	Manufacturing company	Raw materials	WIP	FG	CoGS
Data set:	Manufacturing business	GAAP	Variable	Fixed	Beginning Raw materials +	100,000
A	Sold	900	units	sell price each:	$ 110.00	Sales	Sales	Materials	Buy materials +	20,000
B	Purchased Materials Cost each	$ 62.00	CoGS	CoGS	Available for use Raw materials =	120,000
C	sales rent per month	$ 3,000.00	Sell.Exp	Sell.Exp	Ending Raw materials -	55,000
D	Insurance costs month:	$ 1,200.00	Admin.Exp	Admin.Exp	RW used for Production =	65,000
E	Sales salaries exp:	$ 4,000.00	Commission on sales	4.50%	Sell.Exp	Sell.Exp	Sell.Exp	Y=4000+4.5%Xsales
G	Admin salary expense	$ 2,800.00	Admin.Exp	Admin.Exp	Beginning WIP +	77,000
H	Purchase new servers	$ 11,000.00	N/A	N/A	N/A	N/A	Capital expenditure	Issued to WIP from Raw material inventory +	65,000
I	Advertising expense	$ 950.00	Sell.Exp	Sell.Exp	Direct labor +	21,000
J	Product brochures attached to each sold item	$ 1.75	each	CoGS	CoGS	Applied overhead [Indirect costs] +	42,000
K	Communication expense	$ 2,450.00	Admin.Exp	Admin.Exp	Total Manufacturing costs;WIP for Period =	205,000
L	Depreciation expense: Sales Office	$ 1,900.00	Sell.Exp	Sell.Exp	Ending WIP Inventory -	64,000
M	Depreciation expense: general & admin	$ 1,800.00	Admin.Exp	Admin.Exp	COG manufactured; [sent to FG] =	141,000
N	Shipping Warehousing rent	$ 1,050.00	Sell.Exp	Sell.Exp
O	Factory direct labor	$ 2,650.00	Labor	Labor	Direct Labor	Beginning FG +	214,000
P	Component warehouse	$ 1,175.00	CoGS	CoGS	Mfg. overhead	To FG from WIP; CoG Manufactured +	141,000
Q	Factory Mamagement	$ 2,290.00	CoGS	CoGS	Mfg. overhead	CoG Available for Sale =	355,000
R	Fringe benefits for direct labor	$ 800.00	CoGS	CoGS	Mfg. overhead	Ending FG inventory -	191,000
S	Fringe benefits for Admin.	$ 200.00	Admin.Exp	Admin.Exp
T	Process utilitiy cost	$ 400.00	CoGS	CoGS	Mfg. overhead	CoGS =	164,000
U	Solder & solvents	$ 200.00	CoGS	CoGS	Mfg. overhead
V	Derperciation factory Bldg. & eqpmnt.	$ 1,860.00	CoGS	CoGS	Summary	Beginning	Additions	Ending
W	Variable Administrative expenses	1%	of sales $s	RW	100,000	20,000	55,000
WIP	77,000	21,000	64,000
Month: July	Var. Income Statement	Comment	FG	214,000	42,000	191,000
Data set:	Manufacturing business	Product	Period	Fixed	Variable	391,000	83,000	310,000	164,000
A	Sold	900	units	sell price each:	$ 110.00	Revenue	$ 99,000	'+'	'+'	'-'	'='
B	Purchased Materials Cost each	$ 62.00	$ 55,800	$ 55,800	x
C	sales rent per month	$ 3,000.00	$ 3,000	$ 3,000
D	Insurance costs month:	$ 1,200.00	$ 1,200	$ 1,200
E	Sales salaries exp:	$ 4,000.00	+ Commission on sales	4.50%	$ 8,455	$ 4,000	$ 4,455	s
G	Admin salary expense	$ 2,800.00	$ 2,800	$ 2,800
H	Purchase new servers	$ 11,000.00	N/A	N/A	N/A	N/A	Capital expenditure
I	Advertising expense	$ 950.00	$ 950	$ 950
J	Product brochures attached to each sold item	$ 1.75	each	$ 1,575	$ 1,575	x
K	Communication expense	$ 2,450.00	$ 2,450	$ 2,450
L	Depreciation expense: Sales Office	$ 1,900.00	$ 1,900	$ 1,900
M	Depreciation expense: general & admin	$ 1,800.00	$ 1,800	$ 1,800
N	Shipping Warehousing rent	$ 1,050.00	$ 1,050	$ 1,050
O	Factory direct labor	$ 2,650.00	$ 2,650	$ 2,650	x
P	Component warehouse	$ 1,175.00	$ 1,175	$ 1,175
Q	Factory Mamagement	$ 2,290.00	$ 2,290	$ 2,290
R	Fringe benefits for direct labor	$ 800.00	$ 800	$ 800	x
S	Fringe benefits for Admin.	$ 200.00	$ 200	$ 200
T	Process utilitiy cost	$ 400.00	$ 400	$ 400	x
U	Solder & solvents	$ 200.00	$ 200	$ 200	x
V	Derperciation factory Bldg. & eqpmnt.	$ 1,860.00	$ 1,860	$ 1,860
W	Variable Administrative expenses	1%	of sales $s	$ 990	$ 990	s
Totals	è	$ 66,750	$ 24,795	$ 24,675	$ 66,870	←	Totals
No change in FG/WIP inventory	Contribution format
GAAP	Managerial Accounting	Variable
Sales	$ 99,000	Sales	$ 99,000
Cost of Goods Sold	$ 66,750	Variable Costs & Expenses
Gross Margin [Gross Profit]	$ 32,250	Cost of Goods Sold	$ 61,425	x	$ 55,800	$ 61,425	$ 61,425
Variable Selling Expenses	$ 4,455	$ 1,575	$ 5,445
Selling & Administrative Expense	Variable Admin. Expenses	$ 990	$ 2,650	$ 66,870
Selling Expense	$ 15,355	Total Var. Costs & Expenses	$ 66,870	$ - 0
Administrative Expense	$ 9,440	Contribution Margin	$ 32,130	32.5%	$ - 0
Total Sales & Administrative Expense	$ 24,795	$ 800
Fixed Expenses	$ - 0
Net Operating Income	$ 7,455	Manufacturing	$ 5,325	$ 400
Selling Expense	$ 10,900	$ 200
Administrative Expense	$ 8,450
Total Sales & Admin. Expense	$ 24,675
Net Operating Income	$ 7,455	0
check
Income is the same	without consideration of ending inventory changes
IF ending WIP nd/or FG	changes	then GAAP is	NOT equal	to Variable format

ACC220--Ch.2--HCT--&P of &N---&D,&T---&Z&F,&A

Ch.2B

Chapter 2 Hi-Low
Hi-Lo Method	for	Y = a + bX	Excel 3
Compute "b" first then compute "a"
A	B	C	Modeled Y
A6	Actual = X	Actual = Y	using hi - low	Excel Min = low
A7	Units	$	Excel Max = hi	Divide	∆ $s by
A8	2310	$ 10,113	$ 10,568
A9	2453	$ 12,691	$ 11,085	Difference:Min [Lo] - Max {Hi]
A10	2641	$ 10,905	$ 11,765	∆ Units	∆$s
A11	2874	$ 12,949	$ 12,608	3326	$ 12,030	∆ $ & ∆ units
A12	3540	$ 15,334	$ 15,017
A13	4861	$ 21,455	$ 19,795	Imputed variable per unit	∆ $ / ∆ units = b
A14	5432	$ 21,270	$ 21,860	$ 3.617	= b the variable cost per unit
A15	5268	$ 19,930	$ 21,267
A16	4628	$ 21,860	$ 18,952	Formula	Hi	Low
A17	3720	$ 18,383	$ 15,668	Y = 3.617X + 2212.598	Spent	$ 21,860	$ 9,830
A18	2106	$ 9,830	$ 9,830	bX	$ 19,648	$ 7,617
A19	2495	$ 11,081	$ 11,237	after you have computed "b" then compute "a'	$ 2,212	$ 2,213
x = Qty	Varible-bX
Min	2106	$ 9,830	Hi	$ 7,617.40	$ 2,212.60	fixed	= a
Max	5432	$ 21,860	Low	$ 19,647.54	$ 2,212.46	fixed	= a
Regression	Regression Method for	Y = a + bX	Excel 4
The RSQ(array1, array2) function returns the Square of the Pearson Product-Moment Correlation Coefficient between two arrays of data.
A	B	C	D	E	F
A6	Actual	Actual	Modeled	Modeled	$
A7	Units	$	$	% accuracy	Difference
A8	2310	$ 10,113	$ 10,932	8.1%	819
A9	2453	$ 12,691	$ 11,467	-9.6%	(1,224)
A10	2641	$ 10,905	$ 12,170	11.6%	1,265	Can use excel wizard for help with formula
A11	2874	$ 12,949	$ 13,041	0.7%	92	0.916762505	RSQ	RSQ = Parson squared, Excel = "+ RSQ"
A12	3540	$ 15,334	$ 15,531	1.3%	197
A13	4861	$ 21,455	$ 20,469	-4.6%	(986)	3.7385	Slope	= b	Excel "+ slope"	for computations by "hand" see cell A65
A14	5432	$ 21,270	$ 22,604	6.3%	1,334	$ 2,296	Intercept	= a	Excel "+ intercept"	for computations by "hand" see cell A91
A15	5268	$ 19,930	$ 21,991	10.3%	2,061
A16	4628	$ 21,860	$ 19,598	-10.3%	(2,262)	=+SLOPE(C29:C40,B29:B40)
A17	3720	$ 18,383	$ 16,204	-11.9%	(2,179)	=+INTERCEPT(C29:C40,B29:B40)
A18	2106	$ 9,830	$ 10,170	3.5%	340	std deviation	std deviation
A19	2495	$ 11,081	$ 11,624	4.9%	543	4799	Y
X	Y	sum	►►	(0)	4595	Model	0.9574771564	Pearson	=+G41/G40
3527.3	$ 15,483	$ 15,483	0.9%	1229	X	0.916762505	P	2 =	RSQ	=+I41^2
mean	regression error
Ch.2 ACC220//HCT	Hi-Low	Hi-Low	Regression	Regression	Excel 5
Actual	Actual	Modeled	%	Modeled	%	Net Error
Units	$	$s	Error	$s	Error	Hi-Low	Regression
2,310	$ 10,113	$ 10,568	4.5%	$ 10,932	8.1%	4.5%	8.1%
2,453	$ 12,691	$ 11,085	12.7%	$ 11,467	9.6%	-12.7%	-9.6%
2,641	$ 10,905	$ 11,765	7.9%	$ 12,170	11.6%	7.9%	11.6%
2,874	$ 12,949	$ 12,608	2.6%	$ 13,041	0.7%	-2.6%	0.7%
3,540	$ 15,334	$ 15,017	2.1%	$ 15,531	1.3%	-2.1%	1.3%
4,861	$ 21,455	$ 19,795	7.7%	$ 20,469	4.6%	-7.7%	-4.6%
5,432	$ 21,270	$ 21,860	2.8%	$ 22,604	6.3%	2.8%	6.3%
5,268	$ 19,930	$ 21,267	6.7%	$ 21,991	10.3%	6.7%	10.3%
4,628	$ 21,860	$ 18,952	13.3%	$ 19,598	10.3%	-13.3%	-10.3%
3,720	$ 18,383	$ 15,668	14.8%	$ 16,204	11.9%	-14.8%	-11.9%
2,106	$ 9,830	$ 9,830	0.0%	$ 10,170	3.5%	0.0%	3.5%
2,495	$ 11,081	$ 11,237	1.4%	$ 11,624	4.9%	1.4%	4.9%
6.4%	6.9%	-2.5%	0.9%
Average	Average	average error
absolute error	absolute error
RSQ	X	Y	Prod	X	2	Y	2
by	1,217	5,370	6,537,587	1,481,900	28,841,375
Hand	1,074	2,792	2,999,986	1,154,192	7,797,591
886	4,578	4,058,003	785,587	20,961,899
653	2,534	1,655,819	426,844	6,423,268
(13)	149	(1,893)	160	22,325
(1,334)	(5,972)	7,964,102	1,778,667	35,659,808
(1,905)	(5,787)	11,021,512	3,627,755	33,484,547
(1,741)	(4,447)	7,740,019	3,029,920	19,772,103
(1,101)	(6,377)	7,018,493	1,211,467	40,660,815
RSQ = Pearson2 = correlation coefficient	2		(193)	(2,900)	558,653	37,120	8,407,584
1,421	5,653	8,035,390	2,020,188	31,961,120
RSQ	1,032	4,402	4,544,761	1,065,712	19,381,273
by	Sum of products	62,132,433	16,619,515	253,373,707	Sums
Hand	4,077	15,918	SqRoot of sum
64,891,818	Products of Square roots
0.9575	Pearson [P] = r
0.9168	Pearson	2	= RSQ
Slope By "Hand"
b = slope
_ X = mean of X	_ Y = mean of Y
X	Y	X - mean	Y - mean	X x Y	∆X	2
2310	$ 10,113	-1217.3	$ (5,370)	6537587	1481900.44444444
2453	$ 12,691	(18.03)	-1074.3	$ (2,792)	2999986	1154192.11111111
2641	$ 10,905	9.50	-886.3	$ (4,578)	4058003	785586.777777778
2874	$ 12,949	(8.77)	-653.3	$ (2,534)	1655819	426844.444444445
3540	$ 15,334	(3.58)	12.7	$ (149)	-1893	160.4444444444
4861	$ 21,455	(4.63)	1333.7	$ 5,972	7964102	1778666.77777778
5432	$ 21,270	0.32	1904.7	$ 5,787	11021512	3627755.11111111
5268	$ 19,930	(8.17)	1740.7	$ 4,447	7740019	3029920.44444444
4628	$ 21,860	3.02	1100.7	$ 6,377	7018493	1211467.11111111
3720	$ 18,383	(3.83)	192.7	$ 2,900	558653	37120.4444444444
2106	$ 9,830	(5.30)	-1421.3	$ (5,653)	8035390	2020188.44444444
2495	$ 11,081	(3.22)	-1032.3	$ (4,402)	4544761	1065712.11111111
X	Y	-0.0	0.0	62132433.3333333	16619514.6666667
3527.3	$ 15,483	$ (4)
mean	3.7385	slope
Intercept By "Hand"	Y = a + bX
after you have the slope then
intercept = [Mean of Y] - [mean of X]*[slope]
_ Y	$ 15,483
_ X	3527.3
Slope	3.7385
Intercept	2,296.4

HCT---ACC220---&P of &N---&D,&T---&F,&A

Pearson product moment correlation coefficient Assumes Normal Distribution Sum of the products of the difference from the mean for x and y divided by the square root of the product of the sum the squares of the difference from the mean for x time same sum for Y

The variability of Y attributable to the variability of X

Parson done by "hand" using formula above

Ch. 3 NEW

Integrated Example	Ch.3	Variance is material
Job Order Costing	Variance must be capitalized @ reporting date for GAAP
M	WIP	FG	Operating 7 days a week
A.	Overhead Budget for the Year:	Y = a + bX	Beginning	$8,000	$11,000	$14,000
Variable Overhead per Direct Labor [DL] Hrs.	$ 2.75	b	Est	Additions	$45,000	$92,500	$27,000	June	May
Estimated DL hrs.	42,000	X	Est	Used/completed/sold	($43,000)	($27,000)	($27,000)	Actual overhead spending	$ 1,085,000	$ 1,000,200
Variable	$ 115,500	bX	Est	Ending	$10,000	$76,500	$14,000	Applied overhead	$ 962,000	$ 933,000
Fixed Overhead	$ 94,500	a	Est	Under applied	$ 123,000	$ 67,200
$ 210,000	$ 210,000	Y=a+bX	Portion of month in inventory	30/30	18/31
42,000	POHR	$ 5.00	per DL Hr.	100.0%	58.1%
$5.00	Dr/(Cr)	Dr/(Cr)
Dr/(Cr)	Dr/(Cr)	Income statement	Ending inventory/days	48.00
Contra acct. or	Inventory	Overhead spending in CoGS
Liability Acct.	Materials	WIP	FG	CoGS	CoGS	Selling & Admin Exp	Balance in inventory @ June end	$ 162,019
May ending Inventory [Beginning fo June]	$8,000	$11,000	$14,000	Period
June Ending Inventory before adjustment	$10,000	$76,500	$14,000
Material in production
June Activity	Beginning	$8,000
1	Purchase Materials	A/P	($45,000)	$45,000	Added	$45,000
Ending	($10,000)
2	Issued Materials from inventory	$43,000	materials from inventory used in period	Cost including allocation of Fixed Cost
Materials for products	($43,000)	$40,000	($3,000)	less materials to overhead	Variable Cost: Direct Cost [Direct Labor & Materials] +
Indirect materials	$3,000	$40,000	Materials used in production	Variable overhead [within a relevant range]
Marginal Cost: the out-of-packet costs to produce [sell] next unit
3	Payroll for Period	Total Manufacturing costs
Sales Salaries	$2,000	Materials	$40,000	Manufacturing Overhead Control
Direct labor charges to jobs [3500 hrs.@$10/hr]	Wage payable	($49,000)	$35,000	DL	SG&A	DL	$35,000	Accounts are resident in CoGS
Indirect manufacturing labor	$12,000	Applied overhead	$17,500	Spending Accounts
Mfg.OH	$92,500	Salary Expense	66,000
4	Other Manufacturing overhead spending	Wage Expense	78,000
Utilities	($1,700)	$1,700	Production Direct labor	215,000
Accum. Depreciation	($2,900)	$2,900	Fringe benefit expense	74,000
$3,000
Factory Property taxes payable	($1,000)	$1,000	$12,000	Commission expense	- 0	$ 710,000	Budget/estimated OH Spending
$1,700	Advertising expense	750	35500	Budget/estimated Dl Hrs.
5	Apply overhead to jobs using POHR	3500	hrs	$17,500	($17,500)	$2,900	Building rent expense	21,000	$ 20.00	POHR
$ 5.00	$1,000	Equipment lease expense	5,800	34,000	Acutal DL Hrs.
6	Incur Selling expense-Advertising	$3,500	$750	$20,600	Office supply expense	2,300	$680,000	Applied Overhead
Contract labor Expense	34,000
7	Completed Work from WIP	($27,000)	$27,000	Beginning	$11,000	WIP	Travel/entertainment exp.	2,000
added	$92,500	Professional services	3,200
Ending	($76,500)	WIP	Bank charges/fees	- 0
To FG	$27,000	Cost of Goods manufactured	Depreciation expense	144,000
Miscellaneous expense	3,950
8	Sold FG to Customer	($27,000)	$27,000	Beginning	$14,000	Total	650,000	this had been debited to CoGS
added	$27,000	inventory did NOT change
Ending	($14,000)	usually beginning	≠	ending	Applied overhead	(680,000)	this was credited thru Applied OH acct. to CoGS
To CoGS	$27,000	Cost of Goods Sold [CoGS]
Net Effect	(30,000)	decrease CoGS
B 1	End of period	adjustment	for over/under applied overhead	WIP	FG	$3,100	←	Sum	under	applied overhead	+Q51+P51
$s applied OH in Inventory [	less than 1 Mo.	In Inv.]	GIVEN	Memo	$10,000	$1,500	MOH remaing in Inv.	% Underapplied	($17,500)	$20,600	17.7%	$3,100
Add	17.7%	$1,771	$266	($2,037)	Entry	17.7%	Applied	Spending	under	-17.7%
Overhead is applied on labor Hrs	Inventory up	65.71%	applied
Dr. Inventory= Under applied [inventory too low, profit too low]	87%	13%	$3,100	WIP	FG	35000	17500
(Cr.) Inventory= over applied [Inventory too high, profit too high]	$10,000	$1,500	$11,500	3500	3500
If	over	applied Cr. Inventory AND dr. CoGS	+11500/17500 =	65.71%	of a month	10	5
+66% * $3100	$2,037
B 2	End of period adjustment for over/under applied overhead	WIP	FG	$7,264	←	Sum	under	applied overhead	Integrated Example
$s applied OH in Inventory [	more than 1 Mo.	In Inv.]	Memo	$8,000	$32,000	ççççç	More than one month
($728)	$ (2,914)	$3,642	Entry
Overhead is applied on labor Hrs	Inventory up
Dr. Inventory= Under applied [inventory too low, profit too low]
(Cr.) Inventory= over applied [Inventory too high, profit too high]
If over applied Cr. Inventory AND dr. CoGS	$40,000	Applied in inventory
$17,500	Applied this Mo
$16,000	Applied prior Mo
$16,500	Applied 2nd Mo. Prior
Over/(under applied)	Adjustment to ending inventory
# mo Applied in inventory	1.00	$17,500	Applied this Mo	($3,100)	$ (3,100)	17.7%	under	applied
1.00	$16,000	Applied prior Mo	$600	$ 600	given
0.39	$6,500	Applied 2nd Mo. Prior	($2,900)	$ (1,142)	given
2.39	$ 40,000	($5,400)	$ (3,642)
$8,000	$32,000	$40,000
20.0%	80.0%	100.0%
$ (728)	$ (2,914)	$ (3,642)
500	525
500	525	1000	1200
1300	1300	0.5	0.4375
0.3846153846	0.4038461538

ACC220---HCT---&P of&N---&D, &T---&F, &A

In PPT

Ch.3 Job Cost OLD

Integrated Example	Ch.3	Variance is material
Job Order Costing	See new file	Variance must be capitalized @ reporting date for GAAP
Operating 7 days a week
A.	Overhead Budget for the Year:	Y = a + bX
Variable Overhead per Direct Labor [DL] Hrs.	$ 2.75	b	June	May
Estimated DL hrs.	42,000	X	Actual overhead spending	$ 1,085,000	$ 1,000,200
$ 115,500	bX	Applied overhead	$ 962,000	$ 933,000
Fixed Overhead	$ 94,500	a	Under applied	$ 123,000	$ 67,200
$ 210,000	Y=a+bX	Portion of month in inventory	30/30	18/31
POHR	$ 5.00	per DL Hr.	100.0%	58.1%
Dr/(Cr)	Dr/(Cr)
Dr/(Cr)	Dr/(Cr)	Income statement	Ending inventory/days	48.00
Contra acct. or	Inventory	Overhead spending in CoGS
Liability Acct.	Materials	WIP	FG	CoGS	Cogs	Selling & Admin Exp	Balance in inventory @ June end	$ 162,019
May ending Inventory	$8,000	$11,000	$14,000
June Ending Inventory before adjustment	$10,000	$76,500	$14,000
Material in production
June Activity	Beginning	$8,000
1	Purchase Materials	A/P	($45,000)	$45,000	Added	$45,000
Ending	($10,000)
2	Issued Materials from inventory	$43,000	materials from inventory used in period	Cost including allocation of Fixed Cost
Materials for products	($43,000)	$40,000	($3,000)	less materials to overhead	Variable Cost: Direct Cost [Direct Labor & Materials] +
Indirect materials	$3,000	$40,000	Materials used in production	Variable overhead [within a relevant range]
Marginal Cost: the out-of-packet costs to produce [sell] next unit
3	Payroll for Period	Total Manufacturing costs
Sales Salaries	$2,000	Materials	$40,000	Manufacturing Overhead Control
Direct labor charges to jobs [3500 hrs.]	Wage payable	($49,000)	$35,000	DL	$35,000	Accounts are resident in CoGS
Indirect manufacturing labor	$12,000	Applies overhead	$17,500	Spending Accounts
$92,500	Salary Expense	66,000
4	Other Manufacturing overhead spending	Wage Expense	78,000
Utilities	($1,700)	$1,700	Production Direct labor	215,000
Accum. Depreciation	($2,900)	$2,900	Fringe benefit expense	74,000
Property taxes payable	($1,000)	$1,000	Commission expense	- 0
Advertising expense	750
5	Apply overhead to jobs using POHR	3500	hrs	$17,500	($17,500)	Building rent expense	21,000
Equipment lease expense	5,800
6	Incur Selling expense-Advertising	$750	Office supply expense	2,300
Contract labor Expense	34,000
7	Completed Work from WIP	($27,000)	$27,000	Beginning	$11,000	WIP	Travel/entertainment exp.	2,000
added	$92,500	Professional services	3,200
Ending	($76,500)	WIP	Bank charges/fees	- 0
To FG	$27,000	Cost of Goods manufactured	Depreciation expense	144,000
Miscellaneous expense	3,950
8	Sold FG to Customer	($27,000)	$27,000	Beginning	$14,000	Total	650,000	this had been debited to CoGS
added	$27,000
Ending	($14,000)	usually beginning	≠	ending	Applied overhead	(680,000)	this was credited thru Applied OH acct. to CoGS
To CoGS	$27,000	Cost of Goods Sold [CoGS]
Net Effect	(30,000)	decrease CoGS
B 1	End of period adjustment for over/under applied overhead	WIP	FG	$3,100	←	Sum	under	applied overhead
$s applied OH in Inventory [less than 1 Mo. In Inv.]	Memo	$10,000	$1,500	% underaplied	($17,500)	$20,600	17.7%
Add	17.7%	$1,771	$266	($2,037)	Entry	17.7%	Applied	Spending	under
Overhead is applied on labor Hrs	Inventory up	applied
Dr. Inventory= Under applied [inventory too low, profit too low]	35000	17500
(Cr.) Inventory= over applied [Inventory too high, profit too high]	3500	3500
If over apllied Cr. Inventory AND dr. CoGS	10	5
B 2	End of period adjustment for over/under applied overhead	WIP	FG	$4,163	←	Sum	under	applied overhead	Integrated Example
$s applied OH in Inventory [> 1 Mo. In Inv.]	Memo	$8,000	$32,000	% underaplied
Add	0.0%	($728)	$ (2,914)	$3,642	Entry
Overhead is applied on labor Hrs	Inventory up
Dr. Inventory= Under applied [inventory too low, profit too low]
(Cr.) Inventory= over applied [Inventory too high, profit too high]
$0	($11,900)	ERROR:#DIV/0!
If over apllied Cr. Inventory AND dr. CoGS	$40,000	Aplied in inventory	Applied	Spending	under
$17,500	Applied this Mo	applied
$16,000	Applied prior Mo
$16,500	Appilied 2nd Mo. Prior
Over/(under applied)	Adjustment to ending inventory
# mo Applied in inventory	1.00	$17,500	Applied this Mo	($3,100)	$ (3,100)	17.7%	under	applied
1.00	$16,000	Applied prior Mo	$600	$ 600
0.39	$6,500	Appilied 2nd Mo. Prior	($2,900)	$ (1,142)
2.39	$ 40,000	($5,400)	$ (3,642)
$8,000	$32,000	$40,000
20.0%	80.0%	100.0%
$ (728)	$ (2,914)	$ (3,642)

Ch. 4 process Board e.g.

Board Example
Weighted Average	Simple
Ch. 4 Process Costing	Equivalent
$s	Qty	%	Units
Beginning	$ 22,000	6,000	75%	4,500	6,000
10,000
Started in Period	$ 50,000	10,000	16,000
Completed in period	11,000	100%	11,000	11,000
5,000
Ending	5,000	60%	3,000	16,000
Per Unit	$ 22,000	Beginning $s
$ 50,000	Period $
$ 72,000	Beg +Period
Completed units corresponding to Beg + Period
11,000	Units
Cost per equivalent unit
Units	11,000	Completed = 100%
3,000	Ending equivalent units
14,000	Total:
$ 5.14	Weighted average cost per equivalent unit
+	3000	X 5.14 =	15,420	Ending WIP inventory $s
Same Data Set @ Weighted Average
FIFO	Equivalent
$s	Qty	%	Units
Period only	$ 50,000
100% - 75%	to complete
Completed from Beginning	6,000	25%	1,500	beginning
Started	10,000	Started in Per.	10,000	11,000	completed
Started & completed	11000-6000=	5,000	100%	5,000	11000 completed	End	(5,000)	(6,000)	started with Beginning
5000from started	Stared & c0mpleted	5,000	5,000	End
Ending	NOT complete	5,000	60%	3,000
1,500
Equivalent units done for period costs	èè	9,500	5,000	$ 50,000
Cost Each	$ 5.26	3,000	9,500
9,500	$ 5.26
Ending inventory	$ 15,780
5.26 x 3000
Sheet	Income	Corrected
Balance	Statement	Hand-out
Account Title	Accounts	Accounts	Feb.6-2017
Work-in-process	Inventory
Raw materials	Inventory
Finished Goods	Inventory
Wages Payable for direct labor	Wages payable
Direct Labor from wages payable	Inventory [WIP]
Overhead expense Accounts [spending accts.]	CoGS: manufacturing spending [	Dr	.]
Applied overhead Acct. [@actual OR @ POHR]	CoGS: manufacturing spending [	Cr	.]
WIP is	debited
Sheet	Income	Corrected
Balance	Statement	Hand-out
Account Title	Accounts	Accounts	Feb.6-2017
Work-in-process	Inventory
Raw materials	Inventory
Finished Goods	Inventory
Wages Payable for direct labor	Wages payable
Direct Labor from wages payable	Inventory [WIP]
Overhead expense Accounts [spending accts.]	CoGS: manufacturing spending [	Dr	.]
Applied overhead Acct. [@actual OR @ POHR]	CoGS: manufacturing spending [	Cr	.]
WIP is	debited

ACC220---&P of &N---&D, &T---&F, &A---HCT

Handout

Ch. 4 slides 40-50

Ch.4 Process cost
Weighted Average	Inventory Valuation Method (FIFO Average)	Same if total overhead	Weighted average	Assembly Department
Department: SMD	Materials	Materials	Materials	Materials	Conversion = DL + Variable Overhead	Total $	Cost Reconciliation / Weighted Average Method
Units	$	% complete	Equiv. Units	Units	$	% complete	Equiv. Units	Costs to be accounted for:
Qty	$	%	Eq. Qty	Qty	$	%	Eq. Qty	Cost of beginning Work in Process Inventory	$15,175
Beginning	200	200	$9,600	55%	110	200	$5,575	30%	60	$ 15,175	Costs added to production during the period	$729,500
Total cost to be accounted for	$744,675
Started	5000	5000	$378,600	5000	$350,900	added in period	$ 729,500	Total costs to be accounted	$744,675
solve	Completed	4800	4800	100%	4800	4800	100%	4800
10000
Ending	-400	400	40%	160	400	25%	100
Cost accounted for as follows:
Equivalent Production	$388,200	4960	$356,475	4900	200	$356,475	Cost of units transferred out	$ 724,877
Ending WIP Inventory	$19,798
Total $ for Wghtd. Avgr. inventory valuation	$378,200	$356,475	$ 734,675	200	Cost of ending Work in Process Inventory	$19,798
Per unit	$78.27	$72.75	$ 744,675	5000	4900	Ending WIP Inventory	$ 19,798
5200	72.75	Total cost accounted for	$ 744,675
To next department	4800	$375,677	100%	4800	4800	$349,200	100%	4800	$ 724,877
Ending WIP for SMD	400	$12,523	40%	160	400	$7,275	25%	100	$ 19,798	4800	$72.75
$388,200	4960	$356,475	4900	$ 744,675	400	100	End
0.00	5200	$7,275	End Inv. $
FIFO:	Appendix A	Same if total overhead
Department: SMD	Materials	Conversion = DL + Variable Overhead	Total $	F I F O
Units	$	% complete	Equiv. Units	Units	$	% complete	Equiv. Units
M
Beginning	200	$9,600	55%	110	200	$5,575	30%	60	$ 15,175	90
Completion of beginning units	45%	90	to complete beginning	70%	140	4600
160
Started	5000	$378,600	5000	$350,900	$ 729,500	4850
Completed	4800	100%	4800	100%	4800	LOH
140	to finish beginning
Started & completed this period	4600	100%	4600	4600	100%	4600	4600	start & complete
100	End Eq. Qty
Ending	400	40%	160	400	25%	100	4840
Equivalent Production	$378,600	4850	Work done in the period only	4840
Total $ for FIFO	$378,600	$350,900	$ 729,500	$350,900
Per unit	$78.06	$72.50	$ 150.56	4840
72.50	100
To next department	4800	$376,040	100%	4800	4800	$349,225	100%	4800	$ 725,265	$ 7,250
Ending WIP for SMD	400	$12,160	40%	160	400	$7,250	25%	100	$ 19,410
$378,200	4960	$356,475	4900	$ 744,675
Ending Inventory	Qty	$	% compl.	Eq. Qty	Qty	$	% compl.	Eq. Qty	Total
Weighted Average	400	$12,523	40%	160	400	$7,275	0.25	100	$19,798
FiFO	400	$12,160	40%	160	400	$7,250	0.25	100	$19,410
difference	0	$ 362.58	0	0	0	$ 25.00	0	0	$ 387.58
Per unit	$0.20	$0.25
$78.27	$72.75
$78.06	$72.50
$0.20	$0.25
Separate File tab "Cost Allocaton"
Maintenance
$600,000
37.50%	Machining	$225,000
62.50%	Assembly	$375,000	+
IT
$116,000
88.9%	Machining	$103,111
11.1%	Assembly	$12,889
600000
Reciprocal Method
Function A: with reciprocal allocation of OH	Function A = Maintenance
Function B = IT
Function A with reciprocal allocation =
Function A Spending + (Function A % usage of Function B X Function B Spending)
Maintenance =	$600000 + (10% X IT)
IT =	$116000 + (20% X Maintenance)
Maintenance =	$600000 + 10% X ($116000 +	(20% X Maintainance)	)
$600000 + 10% X $116000 + 10% X (20% X Maintenance)
$600000 + $116000 + 2% X Maintanance
98% Maintenance =	$600000 + $11600
98% Maintenance =	$600000 + $11600
98% Maintenance =	$611,600
ah	100% Maintenance =	$ 624,082
IT = $116000 +20%*PM
IT = $116000 +20%*$624082	Reciprocal	Budget	Allocated
ai	IT = $116000 + $124816	$ 624,082	$ - 0	- 0
IT =	$ 240,816	$ 240,816	$ - 0	- 0
$ 864,898	$ - 0	- 0
Machining +
Assembly
PM	IT	0	0	0
$ 624,082	- 0	- 0	- 0	ah X ad
240,816	- 0	- 0	- 0	ai X af
Functional FOH	→	- 0	- 0	- 0	ab
$ - 0	$ - 0	$ - 0

ACC220---HCT---&P of &N---&D, &T---&F, &A

80%

90%

Ch.4 Cost alloc

ACC302
Chapter 15 ACC302 /// Chapter 4 ACC220
Allocation of Costs
HC Tamburro
Single & Dual Rate Methods:
Data Set:	#1
Amount	From	To
a	Relevant Range hours	11,000	13,500
b	Master Budget Fixed Manufacturing Costs	$ 3,000,000
c	Practical Capacity	18,750	Hours
d	Master Budget 2xx1: Peripherals	8,000	hours
e	Master Budget 2xx1: Microcomputers	4,000	hours
f	Total Budgeted Hours	12,000	hours
g	Master Budget Variable OH	$ 200.00	hour
h	Actual 2xx1: Peripherals	9,000
i	Actual 2xx1: Microcomputers	3,000
j	Total Actual Hours	12,000
Single Rate/Single Pool
k	Total Variable OH Budget	$ 2,400,000	g*f
Master Budget Fixed Manufacturing Costs	$ 3,000,000	+b
l	Total Overhead Pool	$ 5,400,000	+ k + i
Rate per Hour
m	Microcomputers	$ 450.00	+ l / f
n	peripherals	$ 450.00	+ l / f
Dual Rate/Single Pool
b	Master Budget Fixed Manufacturing Costs	$ 3,000,000
f	Total Budgeted Hours	12,000
p	Fixed OH Rate	$ 250.00	+ b / f
g	Master Budget Variable OH	$ 200.00
q	Combined Fixed & Variable	$ 450.00	+ p + g
Data Set:	#2
Assuming actual = Budget for variable OH rates
Review Fixed OH only
Isolation of change in hours only
Actual hours
Case	1	2	3
r	Microcomputers	8,000	8,000	8,000
s	Peripherals	4,000	7,000	2,000
t	Totals:	12,000	15,000	10,000
Master Budget Fixed Manufacturing Costs	$ 3,000,000	$ 3,000,000	$ 3,000,000	b
Actual Hours @ Total Budget OH
u	Microcomputers	$ 2,000,000	$ 1,600,000	$ 2,400,000	+ (r / t) * b
v	Peripherals	$ 1,000,000	$ 1,400,000	$ 600,000	+ (s / t) * b
b	Total:	$ 3,000,000	$ 3,000,000	$ 3,000,000	+ u + v
Rate per hour	Actual Hours @ Total Budget OH
w	Microcomputers	$ 250.00	$ 200.00	$ 300.00	+ u / r
x	Peripherals	$ 250.00	$ 200.00	$ 300.00	+ v / s
z	Diff: Master Budg. Single Rate
aa	Microcomputers	$ - 0	$ 50.00	$ (50.00)
Peripherals	$ - 0	$ 50.00	$ (50.00)
ACC 220 Start here	data references from #3	Maintenance	IT
Data Set:	#3	Production Only	2,400	1600	88.9%
Support Departments	Operating Departments	4,000	2,400	37.5%	200	11.1%
Maintenance	IT Support	Machining	Assembly	Total:	6,400	4,000	62.5%	1800
ab	Functional Spending $s	$ 600,000	$ 116,000	$ 400,000	$ 200,000	$ 1,316,000
ac	Units: Hours	1,600	2,400	4,000	8,000	Production Hrs.
ad	%	20.0%	30.0%	50.0%	100.0%
Without support functions	0.0%	37.5%	62.5%	$ 600,000	225000	37.5%	Maintenance
$ 116,000	103111	88.9%	IT Support
ae	Computer Hours	200	1600	200	2,000	328111
af	%	10.0%	80.0%	10.0%	100.0%
Without support functions	88.9%	11.1%	$ 600,000	$ 375,000	62.5%
without service to service	$ 116,000	$ 12,889	11.1%
Data Set:	#4	387889
Direct Method of Overhead Allocation
Allocate from Support direct to operating
ag	Total Operating depts. Hours	6,400	ac operating depts.
ah	support cost-rate per hour	Maintenance	$ 93.75	+ 'ab' Maint. / 'ac' opera. hours
ai	support cost-rate per hour	Assembly	64.44	+ 'ab' IT. / 'ac' opera. hours
Maintenance	IT Support
Allocated	support costs	Maintenance	IT Support	$ 600,000	$ 600,000	$ 116,000	$ 116,000
aj	Machining	225,000	103,111	37.5%	62.5%	88.9%	11.1%
ak	Assembly	375,000	12,889	$ 225,000	$ 375,000	$ 103,111	$ 12,889
al	Total	600,000	116,000	Machining	Assembly	Machining	Assembly
Direct	Fixed OH costs	Direct	Allocated	Total	Rate	Maintenance	IT Support	SUM
az	+ab + aj	Machining	400,000	328,111	728,111	$ 303.38	225,000	103,111	328,111
ax	+ab + ak	Assembly	200,000	387,889	587,889	$ 146.97	375,000	12,889	387,889
aw	+ az + ax	Total	600,000	716,000	1,316,000
Step Down Method of Overhead Allocation	allocate service to service // set hierarchy
Maintenance is deemed Step 1	or higher in hierarchy for allocation
Support Departments	Operating Departments
Maintenance	IT Support	Machining	Assembly	Total:
ac	Hours work done by maint.	1,600	2,400	4,000	8,000
ad	%	20.0%	30.0%	50.0%	100.0%	$ 600,000	Maintenance
$ (120,000)	to IT	20.0%
ae	IT base = Computer Hours	200	1600	200	2,000	$ 480,000	M to Prodn
af	%	10.0%	80.0%	10.0%	100.0%
Funtion spending above
ab	Functional Spending $s	$ 600,000	$ 116,000	$ 400,000	$ 200,000	$ 1,316,000	$ 600,000	30.0%	Machining	$ 180,000
Maint to prodn.	$ 600,000	50.0%	Assembly	$ 300,000
ac From Maint. To all Functions	$ 120,000	$ 180,000	$ 300,000	$ 600,000	+ ab Maint. ad %
ad	Subtotal:	$ 236,000	$ 580,000	$ 500,000	$ 1,316,000
ae	Operating % of IT	88.9%	11.1%	100.0%	af w/out Maint.%	$ 236,000	$ 236,000
af	From IT to Opera. Depts.	$ 209,778	$ 26,222	$ 236,000	+ af * ad IT	Prod. Only %	88.9%	11.1%
From IT after alloc from M	$ 209,778	$ 26,222
ag	Total:	$ 789,778	$ 526,222	$ 1,316,000	+ af + ag	Machining	Assembly
80%/90%	10%/90%
Reciprocal Method
Function A: with reciprocal allocation of OH	Function A = Maintenance
Function B = IT
Function A with reciprocal allocation =
Function A Spending + (Function A % usage of Function B X Function B Spending)
Maintenance =	$600000 + (10% X IT)
IT =	$116000 + (20% X Maintenance)	IT = ($116000 +	(20% X Maintainance)	)
Maintenance =	$600000 + 10% X ($116000 +	(20% X Maintainance)	)
$600000 + 10% X $116000 + 10% X (20% X Maintenance)
$600000 + $116000 + 2% X Maintanance
98% Maintenance =	$600000 + $11600
98% Maintenance =	$600000 + $11600
98% Maintenance =	$611,600
ah	100% Maintenance =	$ 624,082
IT = $116000 +20%*PM
IT = $116000 +20%*$624082	Reciprocal	Budget	Allocated
ai	IT = $116000 + $124816	$ 624,082	$ 600,000	499,265
IT =	$ 240,816	$ 240,816	$ 116,000	216,734
$ 864,898	$ 716,000	716,000
Machining +
Assembly
PM	IT	Machining	Assembly	Total:
$ 624,082	187,224	312,041	499,265	ah X ad
240,816	192,653	24,082	216,734	ai X af
Functional FOH	→	400,000	200,000	600,000	ab
$ 779,877	$ 536,122	$ 1,316,000
Comparison of Methods	Machining +
Assembly
Machining	Assembly	Total:
Direct Method of Overhead Allocation	728,111	587,889	1,316,000
Step Down Method of Overhead Allocation	789,778	526,222	1,316,000
Reciprocal Method	779,877	536,122	1,316,000
Incremental Cost Allocation
Identify primary use
Identify secondary use
Aloocate primary amount of cost to primary use
Allocate incrment over primary to secondary
Value @ cost	Tons
Extract Aluminum fro Ore	12,000,000	24,000,000
Gold is extracted as well	1,200,000	0.0536
Total cost to extract	6,100,000
Withuot extracting Gold	6,000,000
Incremental cost assigned to gold	100,000

ACC220---Ch. 4---HCT---&P of &N---&D,&T---&F,&A

80%

90%

Ch.4 Proc.Cost2 NOT used

Ch.4 Process cost
Weighted Average	Inventory Valuation Method (FIFO Average)
Department: SMD	Materials	Conversion = DL + Variable Overhead	Total $
Units	$	% complete	Equiv. Units	Units	$	% complete	Equiv. Units
Beginning	200	$9,600	55%	110	200	$5,575	30%	60	$15,175
Started	5000	$368,600	5000	$350,900	$719,500
Completed	4800	100%	4800	100%	4800
Ending	400	40%	160	400	25%	100
Equivalent Production	4960	4900
Total $ for Wghtd. Avgr. inventory valuation	$378,200	$356,475	$734,675
Per unit	76.25	$ 72.75
To next department	4800	$366,000	100%	4,800	4800	$349,200	100%	4,800	$715,200
Ending WIP for SMD	400	$12,200	40%	160	400	$7,275	25%	100	$19,475
$378,200	4,960	$356,475	4,900	$734,675
FIFO:
Department: SMD	Materials	Conversion = DL + Variable Overhead	Total $
Units	$	% complete	Equiv. Units	Units	$	% complete	Equiv. Units
Beginning	200	$9,600	55%	110	200	$5,575	30%	60	$15,175
Started	5000	$368,600	5000	$350,900	$719,500
Completed	4800	100%	4800	100%	4800
Started & completed this period	4600	100%	4600	4600	100%	4600	90	4600	160	4850
Ending	400	40%	160	400	25%	100
Equivalent Production	4850	4840	4600	160	200	-110	4850
Total $ for FIFO	$368,600	$350,900	$719,500
Per unit	$ 76.00	$ 72.50
To next department	4800	$366,040	100%	4,800	4800	$349,225	100%	4,800	$715,265
Ending WIP for SMD	400	$12,160	40%	160	400	$7,250	25%	100	$19,410
$378,200	4,960	$356,475	4,900	$734,675
FIFO:
Weighted Average	400	$12,200	40%	160	400	$7,275	25%	100	$19,475
FiFO	400	$12,160	40%	160	400	$7,250	25%	100	$19,410
$12,160
349600
$361,760
Conversion Costs Transferred OUT:
Weighted Average:
Beginnig Costs	5,575
Period Costs	350,900
Total	356,475
Equivalent units	4,900
per Equivalent Unit	$ 72.75
Completed: To next Department or FG	4,800	349,200
Ending in Department	400 = 100 Eq.units	7,275
356,475
FIFO
Beginnig Costs	5,575	to next department
Period Costs	350,900
Total	356,475
Period equivalent units	4,840	[period cost]
per Equivalent Unit	$ 72.50
Completed: To next Department or FG	t6
Started & completed	4,600	333,500
compltion of beginning	140	10,150
Ending in Department	400 = 100 Eq.units	7,250
350,900
to next department
Beginning $	5,575
Perod completion
Started & completed	333,500
Beginning completed	10,150	343,650
349,225
per unit =	$ 72.76
Transferred out + Ending =	356,475
Ch.4 Process cost	BOARD
Weighted Average Inventory Valuation Method (FIFO Average)
Department: ACC220	Materials	Conversion = DL + Variable Overhead	Total $
Dept.A to Dept. B	Units	$	% complete	Equiv. Units	Units	$	% complete	Equiv. Units	1100	End
6500	100%
Beginning	600	$10,000	60%	360	600	$6,000	40%	240	$16,000	7600
to
Started Dept. A	7000	$120,000	7000	$105,000	$225,000	acct. for
Completed	6500	100%	6500	100%	6500	Completed	6500
Ending	1100	70%	770	1100	30%	330	End	1100
Equivalent Production	7270	6830
Total $ for Wghtd. Avgr. inventory valuation	$130,000	Beginning + started $s	$111,000	$241,000
Per unit	$ 17.88	$ 16.25183	17.8817056396	16.2518301611
To next department	6500	$116,231	100%	6,500	6500	$105,637	100%	6,500	$221,868
Ending WIP for ACC220	1100	$13,769	70%	770	1100	$5,363	30%	330	$19,132
$130,000	7,270	$111,000	6,830	$241,000
FIFO:
Department: ACC220	Materials	Conversion = DL + Variable Overhead	Total $	using same begininng
Units	$	% complete	Equiv. Units	Units	$	% complete	Equiv. Units	balance as an example
Beginning	600	$ 10,000	60%	360	600	$ 6,000	40%	240	$16,000	Conver- sion	360	Beg
Started Dept. A	7000	$ 120,000	7000	$105,000	$225,000	5900	100%
Completed	6500	100%	6500	100%	6500	6590	330	End
Started & completed this period	5900	100%	5900	5900	100%	5900	work done in period only
Ending	1100	70%	770	1100	30%	330	Matls	240	Beg
Equivalent Production	6910	6590	5900	100%
Total $ for FIFO	$120,000	Started $s only	$105,000	$225,000	770	End
Per unit	$ 17.37	$ 15.93	6910
To next department	6500	$116,628	100%	6,500	6500	$105,742	100%	6,500	$222,370
Ending WIP for ACC220	1100	$13,372	70%	770	1100	$5,258	30%	330	$18,630
$130,000	7,270	$111,000	6,830	$241,000
FIFO:
Weighted Average	1100	$13,769	70%	770	1100	$5,363	30%	330	$19,132
FiFO	1100	$13,372	70%	770	1100	$5,258	30%	330	$18,630
B	+	A	-	E	=	TRANSFERRED
WA	$ 10,000	$ 120,000	($13,769)	$116,231
FIFO	$ 10,000	$ 120,000	($13,372)	$116,628
ME JE
Dr. WIP Dept.B
Cr. WIP Dept.A

ACC220---HCT----&P of &N---&D,&T---&F,&A

Ch.4ProcCost1

Chapter 4
Process Costing	HSO TOY COMPANY
Data Set:
R	aw	M	aterial	D	irect	L	abor	M	fg.	O	ver	H	ead	Total
Beginning Inventory	$10,000	$1,060	$1,620	$12,680
Units	10,000	10,000	10,000	10,000
% complete	100%	30%	40%
Equivalent units	10,000	3,000	4,000
Units started in period	40,000	40,000	40,000	40,000
Units completed in period	44,000	44,000	44,000	44,000
Cost incurred in period	$44,000	$22,440	$43,600	$110,040
Units to be accounted for = Beg + started	50,000	50,000	50,000	50,000
Ending Inventory	6,000	6,000	6,000	6,000
% complete	100%	50%	60%
Equivalent units	6,000	3,000	3,600
A. Ending Inventory Value using	Weighted Average
Use Beginning Inventory + Period costs
RM	DL	MOH	Total
Beginning Inventory	$10,000	$1,060	$1,620	$12,680
Cost incurred in period	$44,000	$22,440	$43,600	$110,040
Beginning + Period $s = Ending Inventory $s	$54,000	$23,500	$45,220	$122,720
Completed units @ 100%	44,000	44,000	44,000
Ending Inventory Equivalent units	6,000	3,000	3,600
Total Beg. + Period equivalent units	50,000	47,000	47,600
Cost per Equivalent unit	$1.08	$0.50	$0.95	$2.53
for units to next area
Ending Equivalent units	6,000	3,000	3,600
Ending inventory value	$6,480	$1,500	$3,420	$11,400
A. Ending Inventory Value using	FIFO
Use Beginning Inventory + Period costs
RM	DL	MOH	Total
Beginning inventory Units	10,000	10,000	10,000
Beginning inventory: Equivalent units	10,000	3,000	4,000
Period work to complete Beginning units	0%	70%	60%
Period equivalent units production
to complete beginning inventory	0	7,000	6,000
Units started	40,000	40,000	40,000
Units completed	44,000	44,000	44,000
Completed & started in period [less beginning]	34,000	34,000	34,000
= equivalent units for period completed	34,000	34,000	34,000
Ending Inventory	6,000	6,000	6,000
% complete	100%	50%	60%
Equivalent Enduing units	6,000	3,000	3,600
Work done in Period in Equivalent units
Beginning	0	7,000	6,000
Started & completed in period	34,000	34,000	34,000
Ending Equivalent units	6,000	3,000	3,600
Total Equivalent work in period	40,000	44,000	43,600
Cost incurred in period	$44,000	$22,440	$43,600	$110,040
FIFO cost per equivalent unit	$1.10	$0.51	$1.00	$2.61
Ending Inventory value [ Eq. Units x cost/ea.]	$6,600	$1,530	$3,600	$11,730

ACC220--Ch. 4---&P of &N---&D,&T---&F,&A---HCT

Ch5 Base Case

k
A	RBC Company
Item
1.	Planned Base Sales$s = P X Q
2.	Variable costs & expenses $s= Q X b.
3.	CM $s = contribution $s = 1.-2.
4.	Fixed costs & expenses [given data]
5.	3.-4. = Planned Operating Income
CMu P	$500.00	P	$500.00
Sell	price	per	unit	$500.00	P	X b.	-$300.00	CMu	$200.00
Variable	costs	& expenses per unit	$300.00	b.	=CMu	$200.00	= CM%	40.0%
CMu	= Contribution margin per unit	$200.00	C. = P-b
Plan	ned Base case	Quantity	500	Q.	Sales$s	$500.00	BE Qty.
Plan	ned Base	Sales$s	$250,000	e. = P X Q	X	500	Fixed	$80,000
Variable costs & expenses $s	$150,000	bx = b X Q	=	$250,000	/ CMu	$200.00
CM $	s = contribution $s	$100,000	CM$s = e - bx OR CMu. X Q	BE Qty.	400
CM %	= Contributiin ratio = Contribution %	40.0%	CM% = CMu/a. OR CM$s/e.	Var. cost $	500
X	$300.00	Safety Margin Units
Fixed	costs & expenses	$80,000	Fxd.	=	$150,000	Op. Inc.	$20,000
Breakeven	: Qty. (Units) = BE Qty	400	BE Qty= Fxd/CMu	/ CMu	$200.00
Breakeven	: Sales$s	$200,000	BE Sales$ = BE Qty X P -OR- Fxd/ CM%	Safety Q	100
Safety	Margin	$s	$50,000	s1. = Sales $s-BE Sales$	Var. cost $	$300.00
Safety Qty.	Margin	Units	100	s2. = Q.- BE Qty	X	$500	Leverage ratio
=	$150,000	CM$s	$100,000	40.0%
Operating Income [above]	$20,000	/ Op. Inc.	$20,000	8.0%
Leverage		Ratio	5.00	CM$ / Operating Income	1% ∆ CM	Ratio	5.00	5.00
= 5% ∆ Op.Income	$s	%s
Ratio = 5
B	Base Case	CH.5 PPT
a	SP unit	$500
b	Var.cost per unit	$300
c1	CM$/unit	$200	a-b	per unit
c2	CM%	40.0%	c1 / a	CM%
Fixed costs
d	Manufacturing	$50,000
e	S&A	$30,000
f	Total Fxd	$80,000	d+e
g	Sales Budget [Base]	500	units
C	h	Profit [	contribution format	IS [NOT GAAP}] at Target =	Budget = Base Case
per unit	$s	%
i	Sales	$500	$ 250,000	100.0%	Sales
j	Variable costs & Expense	$300	$ 150,000	60.0%	Variable costs & Expense
k	Contribution margin	$200	$ 100,000	+$200/$500=40%	CM% Contrib ratio $s	40.0%	Contribution margin
l	Fixed expenses	$80,000	$100,000/$250,000=40%	32.0%	Fixed expenses
m	Net income [Operating Income]	$20,000	8.0%	Net income [Operating Income]
D
$250,000
$450,000
Using CM%	Using CMu	$200,000	more
Fixed costs & expenses	$80,000	$180,000	to go from $20000 to $100000
+Target Profit	$100,000	CMu	$200.00	profit
Sunm to be covered by Sales	$180,000	Qty	900	change in profit	80,000
P	$500.00	at 40% CM%	40.0%
+CM%	40.0%	$450,000	change in sales $	200000
Target Sales	$450,000	Target Sales	per unit	$500
Change in unts	400
base	500
Needed Qty	900
E
Quantity	150	Target Profit	$3,000
Profit needed per unit	$20.00
Variable costs & expenses per unit	$300.00
Price neede to achieve desired profit	$320.00

ACC220---HCT---&P of &N---&D, &T---&F, &A

Ch.5 CVP PPT

A	Base Case	CH.5 PPT
a	SP unit	$500
b	Var.cost per unit	$300
c1	CM$/unit	$200	a-b	per unit	Effect of	Δ	Qty = 100
c2	CM%	40.0%	c1 / a	CM%	$500	SP unit
40.0%	CM%
Fixed costs	100	Δ Qty
d	Manufacturing	$50,000	$20,000	Δ	CM$s = Δ NIs
e	S&A	$30,000
f	Total Fxd	$80,000	d+e
g	Sales Budget [Base]	500	units
B	h	Profit [contribution format IS] at Target =	Budget = Base Case
per unit	$s	%
i	Sales	$500	$ 250,000	g X a	100.0%	i / i
j	Variable costs & Expense	$300	$ 150,000	g X b	60.0%	j / i
k	Contribution margin	$200	$ 100,000	I - j	40.0%	k / i	+$200/$500=40%	CM% Contrib ratio $s
l	Fixed expenses	$80,000	f	32.0%	l / i	$100,000/$250,000=40%
m	Net income [Operating Income]	$20,000	k - l	8.0%	m / i
Back to PPT slide
What IF
C	1	n	What IF #1
o	Sales up	40	units	Adv. Up	$10,000	40	540
Profit [contribution format IS] at What if #1 Qty.	500	$500
540	per unit	$s	%	540	$270,000
units	Sales	$500	$ 270,000	[was $250K]	100.0%	i / i	500	40	Qty
Variable costs & Expense	$300	$ 162,000	60.0%	j / i	540
Contribution margin	$200	$ 108,000	40.0%	k / i	CM%	$300
Fixed expenses	$90,000	[was 80,000]	33.3%	l / i	$80,000	$10,000	Fxd. Exp	$162,000
p	Net income [Operating Income]	$18,000	[was 20,000]	6.7%	m / i
40	units	Net change	Adv. Up	$10,000	Net change from the Base Case	Add Adv.
q	Net Change profit Incr/(Decr)	CMu X 40	$8,000	($2,000)	($10,000)	m - p
What IF
C	2
What IF #2
r	Sales up	80	units	Var.cost/unit	$10
Profit [contribution format IS] at What if #2 Qty.
580	per unit	$s	%
units	Sales	$500	$ 290,000	100.0%	500	80	Qty
b + o	Variable costs & Expense	$310	$ 179,800	[was $300]	62.0%	$300	$10	$310
Contribution margin	$190	$ 110,200	38.0%	CM%	580
Fixed expenses	$80,000	27.6%	$179,800
s	Net income [Operating Income]	$30,200	10.4%
80	units	Net change	Var.cost/unit	$10
t	Net Change profit Incr/(Decr)	$200	$16,000	$10,200	($5,800)	p - q	580X$10
$200 X 80	o X c1	o[$s] X (o[qty]+g	Net change from the Base Case
What IF
C	3	What IF #3	Qty	AP∆	Adv. Up
u	Sales up	150	units	Sp down	$20	Adv. Up	$15,000
Profit [contribution format IS] at What if #3 Qty.
per unit	$s	%
WAS $500	Sales	$480	$ 312,000	[was $500]	100.0%	500	150	Qty	650
Variable costs & Expense	$300	$ 195,000	62.5%	$500	($20)	SP unit	$ 480.00
Contribution margin	$180	$ 117,000	37.5%	CM%	$ 312,000
Fixed expenses	$95,000	[was $80,000]	30.4%	$80,000	$15,000	Fxd Exp
v	Net income [Operating Income]	$22,000	7.1%	$95,000
$480
150	units	Net change	Sp down	Adv up[	650 X $20	($13,000)	($300)	650
w	Net Change profit Incr/(Decr)	150 X $200	$30,000	$2,000	($13,000)	($15,000)	Adv. Up	$180	117000
r X c1	[r qty+ g] X r ∆SP	Net change from the Base Case
What IF
C	4	500	75	575	$500
What IF #4	Qty	Commissions∆	Fxd Exp	$287,500
x	Sales up	75	units	Comm.unit	é	$15	Fxd Exp	ê	$6,000
Profit [contribution format IS] at What if #3 Qty.	500	75	Qty	575
per unit	$s	%	$300	$15	Var.cost-Exp	$315
Sales	$500	$ 287,500	100.0%	$181,125
Variable costs & Expense	$315	$ 181,125	[was $300]	63.0%
Contribution margin	$185	$ 106,375	37.0%	CM%
Fixed expenses	$74,000	[was $80K]	25.7%	$80,000	($6,000)	Fxd	$74,000
y	Net income [Operating Income]	$32,375	11.3%
Net Change profit Incr/(Decr)	75	units	Net change	Comm.unit	é	Fxd Exp	ê
$15,000	$12,375	$ (8,625)	$6,000
75X$200	575X$15	Net change from the Base Case
Back to slide 22
Breakeven:
D	Equation Method
Breakeven Units:	Breakeven$s
Total Fxd	$80,000	BE units	400
divide	CM$/unit	$200	SP unit	$500
BE units	400	BE Revenue	$ 200,000
OR	12000
65000
Total Fxd	$ 80,000	21600
CM%	40.0%	Contribution Margin Method	98600
BE Revenue	$ 200,000
526524
Proof: Profit= -0-	per unit	$s	5.34
Sales	$500	$ 200,000	at 400 units	100%
Variable costs & Expense	$300	$ 120,000	60%
Contribution margin	$200	$ 80,000	40%
Fixed expenses	$80,000
Net income [Operating Income]	$0	Profit @ zero = Breakeven
Back to slide 33
Target
Target Profit	$ 100,000
CM must cover the fixed expense AND the target profit
Data	SP unit	$500	To have a profit of	$ 100,000
Set	Var.cost per unit	$300	Total Fxd	$80,000
CM$/unit	$200	Sum	$ 180,000	Profit + Fxd. Costs & Expenses
CM%	40.0%
CM$/unit	$200
Target Units	900	$180000 / $200
Manufacturing	$50,000	@SP/unit	$450,000	Target revenue $s
S&A	$30,000
Total Fxd	$80,000	OR	CM%	40.0%	$180,000 / 40%
$ 450,000	Target revenue $s
Sales Budget [Base]	500	Base case	Proof	Target	per unit	$s
Sales	$500	$ 450,000	100%
Variable costs & Expense	$300	$ 270,000	60%
Contribution margin	$200	$ 180,000	40%
Fixed expenses	$80,000	18%
Net income [Operating Income]	$100,000	22%
Go to PPT slide 36
1.49
-0.36
1.13	76%
1300
1150.4424778761
1714.1592920354

ACC220---HCT---&P of &N---&D, &T---&F, &A

CH5-MixCVP

Sales Mix & CVP	Use an Average Uunit
Average	Ch.5 CVP
Bikes	Carts	Unit	ACC220
Units	500	300	800
Mix: Units	62.5%	37.5%	100.0%
Dollars	75.2%	24.8%	100.0%
Per Unit
Sales Price	$ 500.00	$ 275.00	$ 415.63	Weighted average used units	$332,500	$s
Variable cost per Unit	800	Units
Direct Materials	$ 200.00	$ 125.00	$ 171.88	Weighted average used units	$ 415.63	average
Variable LOH	$ 75.00	$ 60.00	$ 69.38	Weighted average used units
Total variable costs per unit	$ 275.00	$ 185.00	$ 241.25	Sum	$ 200.00	$ 125.00
Varable Sales & Admin. Per Unit	$ 25.00	$ 15.00	$ 21.25	Weighted average used units	500	300	800	Units
Total Variable Costs & expenses	$ 300.00	$ 200.00	$ 262.50	Sum	$ 100,000	$ 37,500	$ 137,500	$s
171.88	$s / uynits
Contribution margin per unit	$ 200.00	$ 75.00	$ 153.13	Difference
CM %	40.0%	27.3%	36.8%
Fixed Manufacturing Costs	$ 30,000	$ 20,000	per month
Fixed S&A Expenses	$ 50,000	per month
Added
P&L Brief (Month)	Bikes	Carts	Total Company	800
Sales	$250,000	$82,500	$332,500	100.0%	$ 153.13
Variable Costs & Expenses	$150,000	$60,000	$210,000	63.2%
CM $	$100,000	$22,500	$122,500	36.8%	$ 122,500
CM%	40.0%	27.3%	36.8%	36.842105263158%
36.800000000000%
Fixed Costs & Expenses [given]	$ 80,000	$ 20,000	$100,000	30.1%
$100,000
Operating Income	$20,000	$2,500	$22,500	6.8%	$22,500
Operating Leverage	5.00	9.00	5.44	5.44	1000000
368421.052631579
Breakeven
Fixed Costs & Expenses	$ 80,000	$ 20,000	$ 100,000	using	Mix % x BE sales $	$100,000	Fxd
CM%	40.0%	27.3%	36.8%	CM%	75.2%	24.8%	36.8%	Mix CM%
Breakeven	$204,082	$67,347	$271,429	Method	$271,429	$271,429	$ 271,429	divide
BE $-Mix	75.2%	24.8%	100%	$ 204,082	$ 67,347
Bikes	Carts	Bikes	Carts
Breakeven	81,633	18,367	100,000	$ 204,082	$ 67,347
Fixed Costs & Expenses	$ 80,000	$ 20,000	$ 100,000	using	40.0%	27.3%	CM %	40.0%	27.3%
CM$ per unit	$ 200.00	$ 75.00	$ 153.13	Units	$81,633	$18,367
Breakeven units	408	245	653	Method	100000
BE Sales $	$ 204,000	$ 67,375	$ 271,375	*	153
* did not use fractional units would be exactly the same with fractional units	653.06
Redo	480	SP ea.
580	Sales	650	575
310	Coad ea
1.49	190	CMu	180	185
1150	110200	CM$s	117000	106375
1713.5	80000	Fxd	95000	74000
30200	Net inc	22000	32375
20000	@ 500 Net Inc	20000	20000
1300	10200	Increase	2000	12375
1.13
1150.4424778761
2100
1.49
0.36
Sales	3129	3754.8	+20%
V	756	907.2	+20%
Cm	2373	2847.6	+20%
F	1300	1301	0%
NI	1073	1546.6	144.1%
OL	2.21	44.1%

ACC220---HCT---&P of &N---&D, &T---&F, &A

Ch.7 ABC

ACC220
Rider University
HCT--Ch 7.---ABC
How can we categorize Expense:
Fixed, variable
Product & period
Functional
Natural
Job or Project
this Chapter "	Activity Based Costs	" = ABC
Financial Reporting
Classic Brass	Example #1
Income Statement Brief [FAC]
Year Ended December 31, 2xx1
Sales	$ 775,000
Cost of goods sold	543,300
Gross Profit [margin]	$ 231,700
Selling and administrative expenses	200,585
Net operating income	$ 31,115
Categorization of Expense:	Example #1
Function	►►►►	Sales	Admin	Production	Distribution	Totals:	Variable	Fixed
Direct Materials	150,000	150,000	150,000	- 0
Production Direct labor	- 0	- 0	115,000	- 0	115,000	115,000	- 0
Salary Expense	25,000	17,000	36,000	9,000	87,000	12,000	75,000
Wage Expense	16,000	9,000	58,000	12,500	95,500	- 0	95,500
Commission expense	12,000	12,000	12,000	- 0
Fringe benefit expense	13,000	8,800	74,000	6,400	102,200	51,000	51,200
Travel & entertainment Exp.	7,000	2,600	700	- 0	10,300	2,000	8,300
Advertising expense	9,500	400	750	200	10,850	10,850
Natural	Building rent expense	3,200	3,600	12,500	4,800	24,100	24,100
Expense	Equipment lease expense	400	2,300	6,900	2,230	11,830	11,830
Supply expense	1,900	1,400	2,300	600	6,200	2,300	3,900
Contract labor Expense	- 0	- 0	34,000	3,320	37,320	34,000	3,320
Warranty services	3,600	450	2,000	300	6,350	4,000	2,350
Professional services	1,900	2,150	3,200	- 0	7,250	7,250
Bank charges/fees	- 0	200	- 0	- 0	200	200
Depreciation expense	2,200	1,975	44,000	11,000	59,175	59,175
Miscellaneous expense	1,400	1,100	3,950	2,160	8,610	215	8,395
Total	97,100	50,975	543,300	52,510	743,885	382,515	361,370
Period	Period	PRODUCT	Period	200,585
200,585
Job	►►►►	Job AB1	Job AB2	Job AB3	Totals	543,300	743,885
Salary Expense	12,000	3,000	- 0	15,000
Wage Expense	2,300	6,200	- 0	8,500
Production Direct labor	21,000	23,000	66,000	110,000
Fringe benefit expense	6,500	9,100	2,200	17,800
Commission expense	2,500	- 0	1,300	3,800
Advertising expense	- 0	- 0	- 0	- 0
Building rent expense	- 0	- 0	- 0	- 0
Equipment lease expense	- 0	- 0	2,150	2,150
Office supply expense	- 0	- 0	- 0	- 0
Contract labor Expense	1,500	2,650	11,500	15,650
Travel/entertainment exp.	250	350	600	1,200
Professional services	1,110	850	1,950	3,910
Bank charges/fees	- 0	- 0	- 0	- 0
Depreciation expense	- 0	- 0	- 0	- 0
Miscellaneous expense	875	625	325	1,825
Totals:	48,035	45,775	86,025	179,835	Not all assigned to jobs
Categorization of Expense:	Functional:
Examples of Functional Areas
Manufacturing	Sales & Marketing	General & Administrative
Mfg. Admin.	Sales Admin	Office of CEO
Process Engineering	Field sales	Finance
Warehouse'	Product development	Human Resources
Material handling	Advertising	General Counsel [legal]
Testing	Distribution/warehouse
Quality Assurance & control
Purchasing [Plant Level]
Line Supervision	Operations; [non-manufacturing]
Equipment maintenance	Operations Admin
Plant Human Resources	Corporate purchasing
Plant maintenance
Many others - can vary by company
Excel A
Baxter Battery Company
Income Statement	GAAP
Year Ended December 31, 2xx1
Sales	50,000,000
Cost of goods sold
Direct	Direct materials	15,000,000
Direct	Direct labor	12,000,000
Manufacturing overhead	14,000,000	41,000,000	no change in inventory
Gross margin [Gross Profit]	9,000,000
Selling and administrative expenses
Direct	Shipping expenses	3,000,000	Each product line has its own warehouse - shipping charges are freight & direct to product lines
Marketing expenses	2,000,000	2/3 Product A, 1/3 Product B	This analysis not shown here
General administrative expenses	6,000,000	11,000,000
Operating loss	(2,000,000)	LOSS
Expense [& Cost]
Direct materials	15,000,000	Traced through Cost System to products
Direct labor	12,000,000	Traced through Cost System to products
Manufacturing overhead	14,000,000	Traditional use manufacturing basis to product chose not to send with products
Shipping expenses	3,000,000	Traced to	Orders	/Customer directly through products
Marketing expenses	2,000,000
General administrative expenses	6,000,000	52,000,000	30,000,000	Cost Sys.	22,000,000
total	Direct to Products	Through ABC Pools
To be put into ABC pools to be allocated to Activities	22,000,000	ABC Pools
Direct trace	30,000,000
Overhead Costs at Baxter Battery	Natural Expense
(Manufacturing and Nonmanufacturing)	& Function
Production Department
Indirect factory wages	6,000,000	Data Given
Factory equipment depreciation	3,500,000
Factory utilities	2,500,000
Factory building lease	2,000,000	14,000,000	63.6%
General Administrative Department	9 expense categories to be allocated
Administrative wages and salaries	4,000,000	Functional Expense into function natural Expense withinh Function
Office equipment depreciation	900,000
Administrative building lease	1,100,000	6,000,000
Marketing Department
Marketing wages and salaries	1,500,000	8,000,000
Selling expenses	500,000	2,000,000	36.4%
Total overhead costs for allocation	22,000,000
POOLS	[2]	Assign Overhead Costs to Activity Cost Pools
Activity Cost Pools	Order Size* [Machine Hours]	Customer Relations [# OF CUSTOMERS]	Sustaining
[1] Define Pools	→→→→	Customer Orders	Design Changes	Other Not allocated	Total
Production Department
Indirect factory wages	30%	30%	20%	10%	10%	100%
Factory equipment depreciation	20%	10%	60%	0%	10%	100%
Factory utilities	0%	10%	60%	0%	30%	100%
Factory building lease	0%	0%	0%	0%	100%	100%
General Administrative Department
Administrative wages and salaries	30%	10%	10%	30%	20%	100%
Office equipment depreciation	30%	10%	0%	20%	40%	100%
Administrative building lease	0%	0%	0%	0%	100%	100%
Marketing Department	Results of ABC study to determine allocation levels
Marketing wages and salaries	30%	10%	0%	50%	10%	100%
Selling expenses	20%	0%	0%	70%	10%	100%
* ORDER SIZE = PROXY FOR MACHINE HOURS
Activity Cost Pools	Customer Relations [# OF CUSTOMERS]	Sustaining
Multiply Amounts by % =	Customer Orders	Design changes	Order Size* Mach.Hrs	Other Not allocated	Total	Product of	%s	above X Total		Amounts	for department
Production Department	30% X $6000,000	6,000,000
Indirect factory wages	1,800,000	1,800,000	1,200,000	600,000	600,000	6,000,000	Manufacturing overhead	3,500,000
20%X$3500K	Factory equipment depreciation	700,000	350,000	2,100,000	- 0	350,000	3,500,000	14,000,000	2,500,000
Factory utilities	- 0	250,000	1,500,000	- 0	750,000	2,500,000	3,700,000	unassigned ABC	2,000,000
Factory building lease	- 0	- 0	- 0	- 0	2,000,000	2,000,000	26.4%	14,000,000	All unassigned
General Administrative Department	- 0	- 0	- 0	- 0	- 0	3,700,000
Administrative wages and salaries	1,200,000	400,000	400,000	1,200,000	800,000	4,000,000	General Administrative Department	2,260,000
Office equipment depreciation	270,000	90,000	- 0	180,000	360,000	900,000	6,000,000	37.7%	200,000
Administrative building lease	- 0	- 0	- 0	- 0	1,100,000	1,100,000	2,260,000	unassigned ABC	6,160,000
Marketing Department	unassigned ABC
Marketing wages and salaries	450,000	150,000	- 0	750,000	150,000	1,500,000	Marketing Department	200,000	10.0%
Selling expenses	100,000	- 0	- 0	350,000	50,000	500,000	2,000,000	unassigned ABC
Total	DOLLARS IN EACH POOL	4,520,000	3,040,000	5,200,000	3,080,000	6,160,000	22,000,000
Money is in the pool	Given data	è
Activity Level [3]	Customer	Sustaining
Pool [1a]	Customer Orders	Design changes	Order Size	Customer Relations	Other Not allocated	Total
Pool $s [1a] from above	4,520,000	3,040,000	5,200,000	3,080,000	6,160,000	22,000,000
ACTIVITY Unit [1b]	Customer Orders	Design changes	Machine Hours	Number of Customers	Not allocated
Allocated	15,840,000
Rate: Activity Level [3]
ACTIVITY Unit [1b]	Customer Orders	Design changes	Machine Hours	Number of Customer	Not allocated	Given data	é
Z =	ACTIVITY Units TO ALLOCATE [1b]	10,000	4,000	800,000	2,000	N/A	◄◄	Given	Hrs.	Units	Extd. Hrs.	ABC rate	$ 6.50
$Amt. per Activity unit [3]	$ 452.00	$ 760.00	$ 6.50	$ 1,540.00	N/A	----RATES----	-B-	0.8	400000	320000	Machine Hrs	448
Denominator - Qty. of the pool activity = Z	Order size as Proxy	-A-	0.6	800000	480000	800000	Assigned $s	$ 2,912
Summary
Allocation ABC	Direct or otherwise traced
Direct materials	15,000,000	Traced as per data set above
Direct labor	12,000,000	Traced as per data set above
Manufacturing overhead	14,000,000
Shipping expenses	3,000,000	Traced as per data set above
Marketing expenses	2,000,000
General administrative expenses	6,000,000	Total Expenses
Total Traced via ABC	22,000,000	30,000,000	52,000,000	22,000,000
Not traced to ABC object	(6,160,000)	ABC Pools not Mfg	Mfg OH	Not to ABC=Sustaining
To ABC Objects	15,840,000	15,840,000	30.5%	in ABC pools	8.4%	63.6%	28.0%
------Product Lines------
Pools	$ in Pool	Activity Measure	Qty of Act. Measure	Rate	Sure Starts [A]	Long Lifes [B]	Total	$22,000,000	ABC Total
Customer Orders	4,520,000	Customer Orders	10,000	$ 452.00	4,000	6,000	10,000	($6,160,000)	Sustaining
Design changes	3,040,000	Design changes	4,000	$ 760.00	- 0	4,000	4,000	$15,840,000	To ABC Objects
Order Size	5,200,000	Machine Hours	800,000	$ 6.50	480,000	320,000	800,000	($3,080,000)	Not to Products [Cust.Serv.]
Customer Relations	3,080,000	Number of Customers	2,000	$ 1,540.00	Measured Actual	Measured Actual	From data set given	$12,760,000	To Products
15,840,000	(6,160,000)	Not in ABC Pools	22,000,000	Sum ABC analysis
Excel B
[A] SureStart	(a)	(b)	(a) × (b)
Activity Cost Pools	Activity Rate	Activity	ABC Cost
Customer orders	$ 452.00	4,000	$ 1,808,000
Design changes	760.00	- 0	- 0
Order size [object is Product]	6.50	480,000	3,120,000	to Sure start
Total	Measured Actual	$ 4,928,000	31.1%
5,200,000	Order size
[B] LongLife	(a)	(b)	(a) × (b)
Activity Cost Pools	Activity Rate	Activity	ABC Cost	$ 4,928,000
Customer orders	$ 452.00	6,000	$ 2,712,000	$ 7,832,000	A	B
Design changes	760.00	4,000	3,040,000	$ 12,760,000	36	48	Min
Order size {object is Product}	6.50	320,000	2,080,000	to Long Life	15,840,000	total to objects	800000	400000	Qty
Total	Measured Actual	$ 7,832,000	49.4%	3,080,000	to objects / not products	$ 1,808,000	Customer Orders	28800000	19200000	Min
$ 12,760,000	80.6%	total ABC to Products	$ 2,712,000	4,520,000	480000	320000
Each	Assignable costs	$ 3,080,000	to customers	$ 4,520,000	100%	Hrs	Hrs
$ 452.00	Customer Orders	4,520,000	Product A	4,928,000	Order
$ 760.00	Design changes	3,040,000	Product B	7,832,000	# designs	0.00	Design changes
$ 6.50	Order Size	5,200,000	NO	3,040,000	3,040,000
SUM	12,760,000	12,760,000	Cust. Relations	3,040,000	100%
$3,080,000
Cust. basis-Not assignable to Prod.A or B	3,080,000	Product A	480,000	Mach.Hrs.	to Products	$ 3,120,000	Order Size
Product B	320,000	Mach.Hrs.	$ 2,080,000	5,200,000
Rate =	$ 6.50	$ 5,200,000	100%
ABC P&L	Sure Starts [A]	Long Lifes [B]	Total	From:	Excel C
Sales	31,300,000	18,700,000	50,000,000	31,300,000	18,700,000
Direct costs --- Direct to product	SureStart	LongLife
Direct material	9,000,000	6,000,000	15,000,000	Cost system	data from cost system	Product line	A	B	Total
Direct labor	7,000,000	5,000,000	12,000,000	Cost system	data from cost system	Quantity	800,000	400,000	1,200,000	A/seach	B/each
Shipping [ Direct to Prod.line]	2,000,000	1,000,000	3,000,000	Each product line has its own warehouse - shipping charges are freight & direct to product lines	Sales	$31,300,000	$18,700,000	$50,000,000	$39	$47
Subtotal	18,000,000	12,000,000	30,000,000	Given data	Ú
Contrib $s	13,300,000	6,700,000	20,000,000	Varable traced	DirectCosts through cost system
Contrib %	42%	36%	40%	with ABC costs	Material;	$9,000,000	$6,000,000	$15,000,000	$11	$15
Activity Pool Costs -Product Related:	ABC Assigned	DL	$7,000,000	$5,000,000	$12,000,000	$9	$13
Order Size-Machine Hours	3,120,000	2,080,000	5,200,000	Shipping	$2,000,000	$1,000,000	$3,000,000	$3	$3
Customer Orders	1,808,000	2,712,000	4,520,000	ABC	Sum	$18,000,000	$12,000,000	$30,000,000	$23	$30
Design changes	- 0	3,040,000	3,040,000	ABC
Subtotal	4,928,000	7,832,000	12,760,000	ABC	Contribution margin	$13,300,000	$6,700,000	$20,000,000	$17	$17
ABC Traceable/Assigned Expenses/Costs	42.5%	35.8%	40.0%	42.5%	35.8%
Product Margin %%% ********	26.7%	-6.1%	14%
Product Margin $$$ ********	8,372,000	(1,132,000)	7,240,000	********
ABC		Unassigned to Product Lines	6,160,000	Unallocated	6,160,000	not in a ABC pool
***	ABC # of Customers '	Customer	common to both	A & B	3,080,000	ABC/Product	ç	in a pool but not to products
Operating Income [Loss]	(2,000,000)
+ Customer Relations 3080000 Number of Customers
*** while can ABC to an activity can't get back to Product
GAAP/Traditional/FAC	Sure Starts [A]	Long Lifes [B]	Total	From:	Excel D
Sales	31,300,000	18,700,000	50,000,000
Cost of Goods Sold [no	∆	in inventory]	No change in inventory	Productcost VS. Period costs
Direct material	9,000,000	6,000,000	15,000,000	Cost system	Same as ABC
Direct labor	7,000,000	5,000,000	12,000,000	Cost system	Same as ABC
Manufacturing	8,400,000	5,600,000	14,000,000	Cost system
Total CoGS	24,400,000	16,600,000	41,000,000	Total manufacturing OH allocated via Mach.Hrs
14,000,000	Product A	480000	60.0%
Gross Profit // Gross Margin	6,900,000	2,100,000	9,000,000	800,000	Product B	320000	40.0%
22%	11%	18%	$ 17.50	Sum	800,000	100.0%
Mach.Hrs.	$3,000,000	Shipping expenses
Selling and administrative expenses	11,000,000	all non-manufacturing expenses	$2,000,000	Marketing expenses
$6,000,000	General administrative expenses
Operating Income [Loss]	(2,000,000)	$11,000,000
Variable/Contribution	Sure Starts [A]	Long Lifes [B]	Total	From:	Var. Mfg. OH
Sales	31,300,000	18,700,000	50,000,000	Var.Mfg. OH	A	B
No change in inventory	$ 17.50
Variable costs & expenses	45%
Direct material	9,000,000	6,000,000	15,000,000	Cost system	Same as GAAP/ABC	$ 7.88	480000	320000
Direct labor	7,000,000	5,000,000	12,000,000	Cost system	Same as GAAP/ABC	2/3 Product A, 1/3 Product B	$ 3,780,000	$ 2,520,000	$7,500	+
Shipping [ Direct to Prod.line]	2,000,000	1,000,000	3,000,000	45% is a Given %	$6,700	+
Manufacturing: 45% variable	3,780,000	2,520,000	6,300,000	Cost system	Prod. Cost	From GAAP	8,400,000	5,600,000	$1,700	+
Variable Sell/Admin 8% of sales	2,504,000	1,496,000	4,000,000	8% is a Given % Commission	Sum	45%	45%	$15,900	=
Total Variable Costs & expenses	24,284,000	16,016,000	40,300,000	6,300,000	3,780,000	2,520,000
Contribution Margin	7,016,000	2,684,000	9,700,000	Shipping [ Direct to Prod.line]	3,000,000	V
22.4%	14.4%	19.4%	22,000,000	Total overhead costs for allocation	Variable Sell/Admin 8% of sales	4,000,000	V
Fixed	(6,300,000)	Manufacturing: 45% variable	General administrative expenses	4,000,000	F
Manufacturing	Fixed	7,700,000	(4,000,000)	Variable Sell/Admin 8% of sales	11,000,000
General administrative expenses	Fixed	4,000,000	11,700,000	Fixed
V Mfg OH	Fxd. Mfg OH	Total Mfg OH	same as
Operating Income [Loss]	(2,000,000)	6,300,000	7,700,000	14,000,000	above
Comparison	Sure Starts [A]	Long Lifes [B]	Total
Gross profit/Gross Margin/Contribution Margin
ABC P&L	8,372,000	(1,132,000)	7,240,000
GAAP/Traditional/FAC	6,900,000	2,100,000	9,000,000
Variable/Contribution	7,016,000	2,684,000	9,700,000
% of Sales
ABC P&L	26.7%	-6.1%	14.5%	Product Margin
GAAP/Traditional/FAC	22.0%	11.2%	18.0%	Gross Profit
Variable/Contribution	22.4%	14.4%	19.4%	Contrib.Margin
% of Total
ABC P&L	115.6%	-15.6%	100.0%
GAAP/Traditional/FAC	76.7%	23.3%	100.0%
Variable/Contribution	72.3%	27.7%	100.0%
back 49

HCT---&P of &N---&D,&T---&F,&A

Business Study to determine units

an objection to ABC is forcing a distribution

an objection to ABC is treating fixed as variable

Given data

1+2+3

Ch.8

Doing calendar Q2
Doing calendar Q2
Doing calendar Q2
Doing calendar Q2
Doing calendar Q2
Doing calendar Q2
Jan	Feb	Mar	Apr	May	Jun	Jul	Aug	Sep	Oct
Units Sales	20,000	50,000	30,000	25,000	15,000	32,000	36,000	42,000	66,000
Price each	$ 10.00	$ 10.00	$ 10.00	$ 10.00	$ 10.00	$ 10.00	250,000
Budgeted Sales	200,000	500,000	300,000	250,000	150,000	320,000	150,000
320,000
Period ending cash	CASH	90,000	30%	uncollected	720,000	Qtr. Sales
Collections	75,000	25%/30% of end Q1 A/R will be collected
70%	of current period	175,000	105,000	224,000
25%	of prior period	62,500	37,500
Sum	Cash collected	250,000	167,500	261,500	679,000	96000	Q2 end A/R @30%	679,000
Looking at Q2
Ending inventory units	20%	Mar	Apr	May	Jun	Jul	Aug
Units Sales	30,000	25,000	15,000	32,000	36,000	42,000
Budget Ending Inventory	4,000	3,000	6,400	7,200	8,400	[20% next mo. Sales]
Sales + Ending	Given	28,000	21,400	39,200	44,400
Less Beginning = prior month-end	(4,000)	(3,000)	(6,400)	(7,200)
= Unit Production	24,000	18,400	32,800	37,200
Raw Matls.
to
FG
in this
Example
No subassy.
Storage
in Inventory
Cost/Lb	Cost/UnitFG
Quantity per unit in Lbs.	5.00	$ 0.40	$ 2.00	Ending Inventory % next month	10%	Looking at Q2
Mar	Apr	May	Jun	Jul
= Unit Production	- 0	24,000	18,400	32,800	37,200	çç	From Production budget Excel B Above
Required for Production/Lbs	- 0	120,000	92,000	164,000	186,000
$s Into FG for Production	$0.40	$ 48,000	$ 36,800	$ 65,600	$ 150,400	Qtr. Total
Budget Ending Inventory	13,000	9,200	16,400	18,600	10% of following Month	18,600
Sales + Ending	129,200	108,400	182,600	$ 0.40	RM
Less Beginning = prior month-end	(13,000)	(9,200)	(16,400)	7,440	End $s
Qty. Purchase	[additions] of Raw material	116,200	99,200	166,200	Material budget
$s. Purchase of Raw material	$ 46,480	$ 39,680	$ 66,480	Material budget	$ 0.40	per lb.
Apr	Apr.
CASH	Ending A/P	$ 12,000	$ 12,000	Beg	$ 12,000
Cr. To A/P = purchases	$ 46,480	$ 39,680	$ 66,480	$ 46,480	Add	$ 46,480
Pay 50% current	[given company policy]	$ 23,240	$ 19,840	$ 33,240	End Q2	1/2 April	$ (23,240)	Paid	$ (35,240)
Pay prior	$ 12,000	$ 23,240	$ 19,840	Cash budget	$ 35,240	$ 23,240
Total paid	$ 35,240	$ 43,080	$ 53,080	Cash budget	$ 131,400	Paid	A/P	Ending
Ending A/P [Beginning + Additions - payments]	$ 23,240	$ 19,840	$ 33,240	Qtr. Total
Guaranteed	Hours	Rate
Payment for quarter	1500	$ 10.00
Required Hrs. per unit	0.05	3	minutes
DL$s. per unit	$ 0.50	700
used for ending Q2 inventory
For this Example no timing difference between earned & Paid
Apr	May	Jun	Qtr sum
From Prodn. Sched.	= Unit Production	24,000	18,400	32,800	75,200
HRs of Prodctn. at Required per unit of 0.05 hrs. ea.	1,200	920	1,640	3,760
DL Cost of production into units at 10 per Hr	$ 12,000	$ 9,200	$ 16,400	37,600
unfavorable variance of	$ 8,800
Hrs = > Required or 1500 by company policy	Hrs paid	1,500	1,500	1,640	4,640	880	Hours
$s paid	$ 15,000	$ 15,000	$ 16,400	46,400
ADDED
Productivity at budget earned HRs/paid HRs	80%	61%	100%	Spend > Used by	$ 8,800	into CoGS
*******
1650
8250
Variable OH $s per HR	$ 20.00	Given:	rate is per DL hr.	45000
Required Hrs. per unit	0.05	Hrs. per unit	3	minutes	53250
Variable OH $s per unit	$ 1.00
Fxd. MOH per month	$50,000
Non cash MOH	$20,000
Cash Mfg. OH	$30,000
Actual	Overhead rates NOT predetermined rates
Apr	May	Jun	Qtr. Sum	Required Hrs. per unit	0.05
= Unit Production	24,000	18,400	32,800	75,200	Fxd. OH spending	$50,000	$50,000	$50,000
# Hrs.	1,200	920	1,640
HRs of Prodctn. at Required per unit of 0.05 hrs. ea.	1,200	920	1,640	3,760	per Hr.	41.67	54.35	30.49
VOH Cost of production at $20 per DL Hr	$24,000	$18,400	$32,800	per unit	2.08	2.72	1.52
Fixed manufacturing OH per period	$50,000	$50,000	$50,000	$ 150,000	ADDED	$ 150,000
Fxd. + Var. Mfg. OH	Total MOH per Month	$74,000	$68,400	$82,800	$ 225,200	$$$$	QTY	$ 225,200	75,200
ACT.Fxd. Mfg. OH rate/hr.	$ 41.67	$ 54.35	$ 30.49	39.89	$ 150,000	3,760	3,760	$1.99
Fxd. Mfg. OH unit	$ 2.08	$ 2.72	$ 1.52	$ 1.99	0.05	hrs. per unit	59.89
Fxd. Mfg. OH rate/hr.	Quarter average	ò	Apr	May	Jun	per Hr.
Budgeted MOH rate per period Fxd.+ Var.	61.67	74.35	50.49	59.89	Fxd + Var	$ 41.67	$ 54.35	$ 30.49	Fxd rate
$ 20.00	$ 20.00	$ 20.00	V. Rate
0	Non-cash expense	($20,000)	($20,000)	($20,000)	$ 61.67	$ 74.35	$ 50.49
Cash	MOH	$ 54,000	$ 48,400	$ 62,800	$ 165,200
Qtr Total
Product Cost using	Qtr. Average Fxd	.unit	Variable	Fixed
0.40	$5.00	Materials	$ 2.00	5 lbs	$0.40/lb
0.05	$10.00	DL	$ 0.50	This example: Std. Hrs./unit	$ 10
0.05	$20.00	V Mfg. OH	$ 1.00	0.05
0.05	$59.89	F MFG. OH	1.99	This example: Actual rate for Qtr.	$ 0.50
Sum	$ 3.50	$ 1.99
$ 5.49	average per unit for Qtr
Product cost without labor variance
CoGS chart	Qty	4,000	No WIP in Example
given	$ 5.49	$ 21,979	Beginning Materials
Excel C	Beginning FG	$ 22,000	4,000	Excel B	Beginning FG
For Inome Statement
+ Input addtions
Excel C	Materials	$ 150,400	CoGS =
Excel D	Labor	$ 46,400	with variance	+ Beginning
Excel E	Overhead	$ 225,200	75,200	Excel B	+ Additions
Total	$ 422,000	- Ending	Ending Inventory Q2	Direct Materials
Average per FG unit	5.49	Excel E	= CoGS
$39,562	$ 0.40	per lb.
- Ending	7,200	(39,562)	7,200	Excel B	End Qty.	7,200	FG	18,600	# lbs.
= CoGS	$ 404,438	Each	5.49	End $s	RM	$ 7,440	$47,002
$47,002	total Inv.
Variable unit period cost	$ 0.50
Fixed period costs	$ 70,000
Non cash expenses	$ 10,000
Cash Expense	$ 60,000
Selling and Administrative
Period Costs
Apr	May	Jun	Qtr. Sum
Units Sales	25,000	15,000	32,000	72,000
Variable Period costs/unit sold	$ 0.50	$ 0.50	$ 0.50
Variable unit period expenses	12,500	7,500	16,000	36,000
Fixed Period Expense	$ 70,000	$ 70,000	$ 70,000	210,000
Total	82,500	77,500	86,000	246,000	to Income statement
Non cash portion	(10,000)	(10,000)	(10,000)	(30,000)
Cash Period Expense	72,500	67,500	76,000	216,000	CASH
Example uses the Direct Method of Receipts and Disbusrsement
for Cash Budgets; large companies use the Balance Ssheet Indirect method
We'll assume the debt exists for full quarter; borrowing may be drwn down as needed
and result is different result
Target Minimum Cash Balance	$10,000	given
Quarter June 30
Beginning Cash Balance	$ 40,000	Given
+ Collections	$ 679,000	Excel A
Cash available	$ 719,000
Cash disbursements:
Materials	$ 131,400	Excel C
Direct labor	$ 46,400	Excel D
Mfg. Overhead=Fxd. + Var - Non-cash	$ 165,200	Excel E	without interest	$ 35,000	Positive
Selling/Admin.	$ 216,000	Excel G	Borrowing	$ 19,000	Average borrowing	given
Equipment Purchased	$ 125,000	Given data	# months	3	Could compute with Beginning Balance
Interest	$ 285	6%	interest	$ 285	6%	B + added/reduced
Total	$ 684,285
Management judged Cash balance adequate to operate did not pay down debt
Cash Balance	$ 34,715	Could change Cash or change borrowing
Debt on BS	$ - 0	Excel K Below	Can balance BS with CASH or With Borrowing
Royal Company
Statement of Income
QE: 6/30	GAAP, FAC	18,600
Sales	720,000	100.0%	Excel A
Less: Cost of Goods Sold	$ 404,438	56.2%	Excel F
Gross Margin	$ 315,562	43.8%
Selling & Admin, Expense	246,000	34.2%	Excel G
Operating Income	69,562	9.7%
Interest Expense	$ 285	0.0%	Excel H
Income before taxes	$ 69,847	9.7%
RM	7,440
FG	39,562
Total Inv	47,002
Beg Cash	$ 40,000
Royal Company	Period Cash	$ 34,715
Month ending 6/30	$ 74,715
Balance Sheet
Assets	debt to Balance
Cash	$ 74,715	Excel H	Keep Cash	392,717	Assets
sold	320,000	Accounts receivable	96,000	Excel A	$ (33,240)
70% collected	(224,000)	Inventory	47,002	Excel F	$ (200,000)
30% not collected	96,000	Land	50,000	Given	$ (156,422)
Equipment	125,000	Given	3,055
Statement of Retained Earnings	Total assets	392,717
Beginning	$ 86,575	Given
less: Dividends	0	Liabilities & Stockholders' Equity
Plus: Income	$ 69,847	Accounts Payable	$ 33,240	Excel C
Ending Retained Earnings	$ 156,422	Long term debt	$ 3,055	Excel H	Keep Cash	Back into to Balance
Common stock	$ 200,000	Given	NOT =	AVERAGE	DEBT
Retained Earnings	$ 156,422	çç	right
Total Liabilities & Stockholders' Equity	$ 392,717
Minimize cash pay debt: balance with cash	Cash	$ 71,660	Accounts Payable	$ 33,240	debt to Balance
$ 74,715	Accounts receivable	$ 96,000	Common stock	$ 200,000	$ 389,662	assets
Debt to -0-	$ (3,055)	Inventory	$ 47,002	Retained Earnings	$ 156,422	$ (33,240)
$ 71,660	Land	$ 50,000	$ 389,662	$ (200,000)
Above	392,717	Equipment	$ 125,000	Debt to balance	$ - 0	$ (156,422)	pay down debt to -0-
Debt to -0-	$ (3,055)	$ 389,662	$ 389,662	$ - 0
389,662

ACC220===HCT---&P of &N---&D, &T---&F, &A

Excel A Sales Budget

Excel D Direct Labor

Excel E Manufacturing Overhead

Excel F CoGS

Excel G S&A Expense

Excel B FG budget

Excel H Cash

Excel I Statement of Income

Excel J // Balance Sheet

Excel C Materials

invested capital

Average Cost Per Unit/ Qtr

Ch.9 Flex A

STATIC Budget	1
For the Period Ended June 30
Static
Planning		ò	Sell Price Each
Budget	$ 75.00	Reminder Y = a + bX
Wages and salaries
Number of units (Q)	500	Characteristics	bX
Fixed	Variable each	Basis
Revenue	$ 37,500	$ - 0	$ 75	units sold	Y =	a	+ b	X
Expenses:	ê	ê	ê	ê
Wages and salaries	$ 20,000	$ 5,000	$ 30	units sold	$ 20,000	$ 5,000	500	$30	$15,000
By	Gasoline and supplies	4,500	$ - 0	$ 9	units sold	$ 4,500	$ - 0	500	$9	$4,500
Natural	Equipment maintenance	1,500	$ - 0	$ 3	units sold	$ 1,500	$ - 0	500	$3	$1,500
Expense	Office and shop utilities	1,000	$ 1,000	$ - 0
in	Office and shop rent	2,000	$ 2,000	$ - 0
this	Equipment Depreciation	2,500	$ 2,500	$ - 0
Example	Insurance	1,000	$ 1,000	$ - 0
Total expenses	32,500
Net operating income	$ 5,000
ACTUAL	1
For the Period Ended June 30
Actual
Results
$ 43,000
Number of units	Driver	550	Actual	Not	550	Fav
$78.18	$75.00	$78.18	$3.18	550
Revenue	$ 43,000	SP Each	$1,750
Expenses:
Wages and salaries	$ 23,500	given from Financials	Net operating income
Gasoline and supplies	5,100	given from Financials	Budget	$5,000
Equipment maintenance	1,300	given from Financials	Actual	$6,450
Office and shop utilities	950	given from Financials	Fav Variance	$1,450
Office and shop rent	2,000	given from Financials
Equipment Depreciation	2,500	given from Financials
Insurance	1,200	given from Financials
Total expenses	36,550
Net operating income	$ 6,450
Variance from Budget	1
Favorable	Sales [units or price each], Revenue Increased
Expenses Costs decrease
Unfavorable: Sales decrease
Expenses/costs increase
Actual V. Static	1
Total
For the Period Ended June 30	Differences
Planning	Actual
Budget	Results	Variances
F=favorable
U= Unfav
Number of units (Q)	500	550	50	F
Revenue	$ 37,500	$ 43,000	$ 5,500	F
Expenses:
Wages and salaries	$ 20,000	$ 23,500	$ 3,500	U
Gasoline and supplies	4,500	5,100	600	U
Equipment maintenance	1,500	1,300	200	F
Office and shop utilities	1,000	950	50	F
Office and shop rent	2,000	2,000	- 0
Equipment Depreciation	2,500	2,500	- 0
Insurance	1,000	1,200	200	U
Total expenses	32,500	36,550	4,050	U
Net operating income	$ 5,000	$ 6,450	$ 1,450	F
DO ALL "Unfavorable" indicate poor performance
NO	1
PPT
STATIC v. FLEX Budget
For the Period Ended June 30	2
Single Driver = Units Sold	STATIC	FLEX'd
STATIC	Planning	Flexible
Planning	Budget	Budget
sell each
Number of units (Q)	$ 75	500	550	Budget Characteristics
Fixed	Variable Each	Basis	Actual	Budget	Flex'd
Revenue	$ 37,500	$ 41,250	$0	$75	units sold	550	X	$75	=	41,250
Expenses:
Mixed	Wages and salaries	$ 20,000	$ 21,500	$5,000	$30	units sold
Var	Gasoline and supplies	4,500	4,950	$0	$9	units sold	550	X	$9	=	$4,950	Var. only
Var	Equipment maintenance	1,500	1,650	$0	$3	units sold	550	X	$3	=	$1,650	Var. only
No variable	Office and shop utilities	1,000	1,000	$1,000	$0	Y =	a	+ b	X
No variable	Office and shop rent	2,000	2,000	$2,000	$0	$ 20,000	$ 5,000	500	$30	Fxd.
No variable	Equipment Depreciation	2,500	2,500	$2,500	$0	Flex'd	Fxd.	550	&
No variable	Insurance	1,000	1,000	$1,000	$0	$ 21,500	$ 5,000	$ 16,500	flexed	Variable
Total expenses	32,500	34,600	y	a	bX
Net operating income	$ 5,000	$ 6,650	$ 1,650	←←Δ due to Volume	=	Variable
STATIC v. FLEX Budget
For the Period Ended June 30	3
Single Driver = Units Sold	Fav/(Unfav)
Planning	Flexible	Activity	Budget static	$ 5,000
Budget	Budget	or Volume	Flex	$ 6,650	$ 1,650	Fav due to volume
Variance	Actual	$ 6,450	$ (200)	Unfav due to Spending/Performance
Number of units (Q)	500	550	50	Fav	$ 1,450	Variance Actual to Budget
Revenue	$ 37,500	$ 41,250	$ 3,750	Fav	Driver	550	100% var.
Expenses:	Variable each	Qty.	bX	a
Wages and salaries	$ 20,000	$ 21,500	$ (1,500)	Unfav	$30	550	16,500	$ 5,000	Mxd. Fxd. & Var.
Gasoline and supplies	4,500	4,950	$ (450)	Unfav	$9	550	4,950	$ - 0	100%
Equipment maintenance	1,500	1,650	$ (150)	Unfav	$3	550	1,650	$ - 0	Var.
Office and shop utilities	1,000	1,000	$ - 0	--	100% Fxd.
Office and shop rent	2,000	2,000	$ - 0	--	100% Fxd.
Equipment Depreciation	2,500	2,500	$ - 0	--	100% Fxd.
Insurance	1,000	1,000	$ - 0	--	100% Fxd.
Total expenses	32,500	34,600	(2,100)	Unfav
Net operating income	$ 5,000	$ 6,650	$ 1,650	Fav
Single Driver = Units Sold	Due to
STATIC v. FLEX Budget	3	Volume
For the Period Ended June 30	F/(Unfav)
% change
Planning	Flexible	Activity	Change should be based on units
Budget	Budget	or Volume	F/(Unfav)
Variance	% change
Number of units (Q)	500	550	10.0%	F
Revenue	$ 37,500	$ 41,250	$ 3,750	10.0%	F	100% Variable
Expenses:	Reminder Y = a + bX	Fixed	Variable Each
Wages and salaries	$ 20,000	$ 21,500	$ (1,500)	-7.5%	U	Fxd. & Variable	$ 5,000	$ 30
Gasoline and supplies	4,500	4,950	$ (450)	-10.0%	U	100% variable	$ - 0	$ 9
Equipment maintenance	1,500	1,650	$ (150)	-10.0%	U	100% variable	$ - 0	$ 3
Office and shop utilities	1,000	1,000	$ - 0	0.0%
Office and shop rent	2,000	2,000	$ - 0	0.0%
Equipment Depreciation	2,500	2,500	$ - 0	0.0%
Insurance	1,000	1,000	$ - 0	0.0%
Total expenses	32,500	34,600	(2,100)	-6.5%	U
Net operating income	$ 5,000	$ 6,650	$ 1,650	33.0%	F
Due to Volume	Revenue	10.0%	Up = Fav	3	Single Driver = Units Sold
Net operating income	33.0%	Up = Fav
PPT	4	Single Driver = Units Sold	Actual minus Flex'd
Revenue Variance	Added Excel 4	Management focus for spending
STATIC v. FLEX Budget	Non-Con. Volume	Controllable
For the Period Ended June 30	Static	F/(Unfav)	Prior Step	F/(Unfav)	Budget
4	Planning	Activity	Flexible	Spending	Data Given	to Actual	550
Budget	or Volume	Budget	Revenue	Actual	Variance	All	Controllable	3.18
Variance	Variance	1,749
Number of units (Q)	500	550	Controllable	550
Revenue	$ 37,500	$ 3,750	$ 41,250	$ 1,750	$ 43,000	$ 5,500	F	F
Expenses:	0
Wages and salaries	$ 20,000	$ (1,500)	$ 21,500	$ (2,000)	$ 23,500	(3,500)	U	U
Gasoline and supplies	4,500	$ (450)	4,950	$ (150)	5,100	(600)	U	U
Equipment maintenance	1,500	$ (150)	1,650	$ 350	1,300	200	F	F
Office and shop utilities	1,000	$ - 0	1,000	$ 50	950	50	F	F
Office and shop rent	2,000	$ - 0	2,000	$ - 0	2,000	0
Equipment Depreciation	2,500	$ - 0	2,500	$ - 0	2,500	0
Insurance	1,000	$ - 0	1,000	$ (200)	1,200	(200)	U	U
Total expenses	32,500	(2,100)	34,600	(1,950)	36,550	(4,050)	U	U
Net operating income	$ 5,000	$ 1,650	$ 6,650	$ (200)	$ 6,450	1,450	F	U
Revenue	$s	Variable	Summary	Variable	Price //	550	Fav.
Static	37,500	Units	$s Each	each	Volume	Spending	500	50
Volume [or Activity]	3,750	50	75	Revenue	$ 75	$ 3,750	$ 1,750
Price/other	1,750	Expenses	$ 42	(2,100)	(1,950)
Actual	43,000	Income	$ 33	1,650	(200)
1,450
Wages and salaries	$s	Variable
Static	20,000	Units	$s Each	Fixed	Single Driver = Units Sold
Activity	(1,500)	50	30	$ 5,000
Price/other	(2,000)
Actual	23,500	4
PPT
ClassCo Manufacturing
STATIC Budget	Y=a+bX	Static	5A1	Multiple Drivers
Budget	DL Hours	Units
Sales Qty.	3,000	Hours	12,000	Driver	4.00	Hrs.Each
Sell each	$ 340	Units	3,000	Driver
3,000
Sales	Units sold	1,020,000	STATIC Budget	340
TWO	Variable	67%	33%	Sales	1,020,000
Expense	Driver	Each	Fixed	Fixed	Variable	% Fxd.
100% V	Direct labor	DL Hours	$ 14.00	0	168,000	12,000	$14.00	0	168,000	0%	12,000	$ 14.00	$ 168,000
100% V	Material & Supplies	Units	$ 22.00	0	66,000	0	66,000	0%	3,000	$ 22.00	$ 66,000
Y=a+bX	Line Supervision	Units	$ 3.00	110,000	119,000	= $110,000 + $3 X 3000 units	110,000	9,000	92%	Y=a+bX
100% F	Deprecation	N/A	$ - 0	250,000	250,000	250,000	0	100%
Y=a+bX	Rework & repair	DL Hours	$ 2.50	20,000	50,000	= $20,000 + $2.5 X 12000 hrs.	20,000	30,000	40%	12,000	$ 2.50	20,000
Y=a+bX	Testing	Units	$ 4.00	80,000	92,000	= $80,000 + $4 X 3000 units	80,000	12,000	87%
100% F	Admin.	N/A	$ - 0	120,000	120,000	120,000	0	100%
580,000	285,000	67%
Total	580,000	865,000	Sum F/V	865,000
Operating Income	155,000
ClassCo Manufacturing	Multiple Drivers	Line supervision	Materials & supplies	Direct Labor	3,345
FLEX Budget	5C3	Driver Units	3,300	Driver Units.	3,300	Driver Hrs.	14,000	4	Hours
Actual	Actual	From Actual Below	per unit	$ 3.00	per unit	$ 22.00	per unit	$ 14.00	13,380	units Sold
Actual Hrs.	14,000	9,900	72,600	196,000	3,300
Actual UnitsSold	3,345	Act. Units made	3,300	MADE=Production	Fxd.	110,000	Fxd.	0	Fxd.	0	4	Hours
Flex'd	119,900	Flex'd	72,600	Flex'd	196,000	13,200	units Made
Sales $	1,137,300	14,000	Actual Hrs.
TWO	Variable	64%	36%	Rework & Repair	800	Unfav Hours
Expense	Driver	Each	Fixed	Fixed	Variable	Variable	Driver Hrs.	14,000	$14
Direct labor	DL Hours	$ 14.00	0	196,000	Flexible budget	0	196,000	14,000	$ 14.00	per unit	$ 2.50	$11,200	Could be classified as Unfav. Perfor. not FLEX
Material & Supplies	Units	$ 22.00	0	72,600	Flexible budget	0	72,600	14,000	$ 22.00	35,000	inlcuded in FLEX in this example
Line Supervision	Units	$ 3.00	110,000	119,900	Flexible budget	110,000	9,900	3,300	$ 3.00	Fxd.	20,000	ACC302 clarifes
Deprecation	N/A	$ - 0	250,000	250,000	Flexible budget	250,000	0	N/A	N/A	Flex'd	55,000
Rework & repair	DL Hours	$ 2.50	20,000	55,000	Flexible budget	20,000	35,000	14,000	$ 2.50
Testing	Units	$ 4.00	80,000	93,200	Flexible budget	80,000	13,200	3,300	4	Testing
Admin.	N/A	$ - 0	120,000	120,000	Flexible budget	120,000	0	N/A	N/A	Driver units	3,300
Total:	580,000	906,700	580,000	326,700	per unit	$ 4.00
Sum F/V	906,700	13,200
Operating Income	230,600	Fxd.	80,000
Flex'd	93,200
Drivers:	Sales
DL Hours	Sold Qty. @ Budget SP each	$340
Units Sold	1,137,300	3,345
Act. Q.	3,345	$1,137,300
Bud.SP ea.	$ 340.00	Volume
Budget	1,020,000	117,300
Actual sales	1,145,300	8,000
Spending/Performance/Price
ClassCo Manufacturing
Actual	Actual	5C2
Units	3345	Actual Hrs.	14,000
Act. Units made	3,300	made	S
Sales	1,145,300
Expense
Direct labor	204,000
Material & Supplies	69,000
Line Supervision	131,000	Multiple Drivers
Deprecation	248,500
Rework & repair	47,000
Testing	95,000
Admin.	128,000
Total	922,500
Operating Income	222,800
Column #1	Column #2	Column #3	Column #4	Column #5
STATIC v. FLEX Budget	Non-Con. Volume	5D4	Controllable Performance	Total	`
For the Period Ended June 30	F/(Unfav)	from above	Budget
Multiple Drivers	Planning	Activity	Flexible	F/(Unfav)	to Actual
Budget	or Volume	Budget	Spending	Actual	Variance
Variance	Variance
DL Hrs	12,000	14,000	Cost/Prics	14,000
Units	3,000	3,300	Perf.	3,300
Sales	1,020,000	117,300	1,137,300	8,000	1,145,300	125,300	0
Expense
DL Hours	Direct labor	168,000	(28,000)	196,000	(8,000)	204,000	(36,000)	0
Units	Material & Supplies	66,000	(6,600)	72,600	3,600	69,000	(3,000)	0
Units	Line Supervision	119,000	(900)	119,900	(11,100)	131,000	(12,000)	0
N/A	Deprecation	250,000	0	250,000	1,500	248,500	1,500	0
DL Hours	Rework & repair	50,000	(5,000)	55,000	8,000	47,000	3,000	0
Units	Testing	92,000	(1,200)	93,200	(1,800)	95,000	(3,000)	0
N/A	Admin.	120,000	0	120,000	(8,000)	128,000	(8,000)	0	Volume	75,600
Total	865,000	(41,700)	906,700	(15,800)	922,500	(57,500)	0	Performance	(7,800)
Total	67,800
Operating Income	155,000	75,600	230,600	(7,800)	222,800	67,800	0
PPT

HCT---&P of &N---&D,&T---&F,&14&A

Quantity of units sold is the driver is this example

More Revenue is Favorable Less Revenue is Unfavorable More Expense/Cost is Unfavorable Less Expense/Cost is Favorable

B-A

A-D

FROM ACTUAL BELOW X

ACTUAL

Create Static Budget

Actual

Actual vs. Static Budget

"Flex' Static Budget

Flex vs Static budget = Volume

Flex vs Static Budget = Volume

5 Column showing Perf./Spdg & Volume

Flex vs Static budget Summary

Create Static Budget

Flex Budget Two Drivers

5 Column showing Perf./Spdg & Volume

Ch.9 Flex B

Rider University	Chapter 9	Chapter 9 -- Example -- HCT	ACC302 Cost Management	Computational Template
ACC220	Flexible Budgets & Direct Cost Variances
Actual	Standard	Normal
Computational Template
Actual	Standard	Normal
Materials	Purchase price	Actual x	Standard x	Actual x
Usage per Unit	Actual x	Standard x	Actual x
Units made	Actual	Actual	Actual
Variance on P&L	No	Yes	No
Labor	Rate per DL .Hr.	Actual	Standard x	Actual
Hrs, per Unit	Actual	Standard x	Actual
Units	Actual	Actual	Actual
Variance on P&L	No	Yes	No
Overhead *	Rate per Hr.	Actual	Standard x	Normal x
Hrs. per Unit	Actual	Standard x	Actual x
Units	Actual	Actual	Actual
Variance on P&L	No	Yes	Yes
Usage per Unit	Actual x	ERROR:#REF!	Actual x
Level 0	Operating Income	FAC	Variable	FAC	Variable	Normal = Plan	Units made	Actual	Actual	Actual
Level 1	Act-Static Budget by P&L line	Actual	Actual	Std.	Std	FAC	Variable	Theoretical	Variance on P&L	No	Yes	No
Level 2	Act-Flex-Static Budget by P&L line	Business Plan Production Units	2,000,000	2,000,000	2,000,000	2,000,000	3,998,000	Labor	Rate per DL .Hr.	Actual	Standard x	Actual
Level 3	Act-Flex-Static Budget by Level below P&L line such as direct costs	Actual Production units	1,975,000	1,975,000	1,975,000	1,975,000	1,975,000	1,975,000	Hrs, per Unit	Actual	Standard x	Actual
Planned Sales Units for STD./Normal & Actual units for Actual	1,875,000	1,875,000	1,950,000	1,950,000	1,950,000	1,950,000	- 0	Units	Actual	Actual	Actual
Level 4	Act-Flex-Static Budget at lower level such as function	Planned Sales Price/unit	$ 525	$ 525.00	$ 531.00	$ 531.00	$ 531.00	$ 531.00	Variance on P&L	No	Yes	No
Planned Ending Inventory	50,000	50,000	50,000	50,000	Overhead *	Rate per Hr.	Actual	Standard x	Normal x
Actual ending Inventory	100,000	100,000	100,000	100,000	100,000	100,000	Hrs. per Unit	Actual	Standard x	Actual x
Static budget Variance:	Actual - static budget	Actual Sales Price	1,875,000	1,875,000	Units	Actual	Actual	Actual
Flexible Budgeted	Actual Unit Sales	$ 525.00	$ 525.00	Variance on P&L	No	Yes	Yes
Sales	Actual units x Budgeted ASP	Direct Material unit price	$ 7.00	$ 7.00	$ 7.25	$ 7.25	$ 7.25	$ 7.25
CM$	Flexible Sales x Budget CM%	DM qty./unit	10.50	$ 10.50	10.75	$ 10.75	$ 10.50	$ 10.50
Direct Costs	Actual Units x Budgeted direct costs/unit @ budget prices	DM $ /unit	$ 73.50	$ 73.50	$ 77.94	$ 77.94	$ 73.50	$ 73.50
Direct Costs	Flex Sales - Flex CM$s	DL Hrs per unit for denominator	6.40	6.40	6.70	6.70	6.70	6.70	4.95	172.7
Variable Overhead	Actual Units x Budgeted VOH/unit	DL Hr. Unit for Absorption/COGS	6.40	6.40	6.70	6.70	6.40	6.40
$/DL Hr.	$ 15.50	$ 15.50	$ 15.75	$ 15.75	15.50	$ 15.50
Level 0 variance	0	Actual Operating Income - Budget OI	DL$ Unit	$ 99.20	$ 99.20	$ 105.53	$ 105.53	99.20	$ 99.20
Static Budget var.by P&L	1	Actual P&L line - budget P&L Line	Planned Variable OH spending	$ 177,500,000	$ 177,500,000	$ 177,500,000	$ 177,500,000
Flexible Budget Variance	2	Actual - Flex budget	Actual Variable OH spending	$ 166,000,000	$ 166,000,000
Flex Budget CM$ Variance	2	(Actual Sales - Flex Sales) x Actual CM$/unit	Planned Fixed OH spending	$ 184,500,000	$ 184,500,000	$ 184,500,000	$ 184,500,000
Flex Input Costs	2	Actual input Qty x Budget input unit price	Actual Fixed OH spending	$ 173,000,000	$ 173,000,000
Sale volume variance for OI	2	Flex - static budget	Basis for OH Rates	DL Hours	DL Hours	DL Hours	DL Hours	DL Hours	DL Hours
Flexible Budget Variance + Sale volume variance = Static Bud. Var.	Denominator for OH Rate	12,640,000	12,640,000	13,400,000	13,400,000	13,400,000	13,400,000
Sale Mix Var.	2	(Act.Units x Actual ASP x Bus. CM$ /unit) - Flex CM$	Basis for Absorption	12,640,000	12,640,000	12,640,000	12,640,000	12,640,000	12,640,000
Sales Volume (or QTY.) Var for OI	2	Budget CM$/unit x ( Actual units - Budget units)
Sale volume variance for OI	2	Sale Mix Var.	.+	Sales Volume (or QTY.) Var for OI
Input Price Variance	3	(Actual Cost input x actual price) - (Actual cost input x budget price)	VOH Rate/Hour	$ 13.13	$ 13.13	$ 13.25	$ 13.25	$ 13.25	$ 13.25
Input Efficiency-Usage Var.	3	VOH Production unit	$ 84.05	$ 84.05	$ 88.75	$ 88.75	84.78	84.78
Selling Price Variance	(Actual Selling Price - budget selling price ) x actual units sold	Fixed OH Rate/Hour	$ 13.69	0	$ 13.77	0	$ 13.77	$ - 0
FOH Production unit	$ 87.59	0	$ 92.25	0	88.12
Level 1	Budget Variance	Var. Operating Exp.	$ 57,262,000	$ 57,262,000	$ 57,262,000	$ 57,262,000	$ 57,262,000	$ 57,262,000
Webb Company	Actual	Budget	Favorable/	(Unfavorable)	Fxd. Operating Exp.	$ 116,895,000	$ 116,895,000	$ 116,895,000	$ 116,895,000	$ 116,895,000	$ 116,895,000
Amount	Per Unit	Amount	Per Unit	Amount	Per Unit	%
Units	10,000	12,000	(2,000)	-16.7%	GAAP	Yes	NO	Yes	NO	Yes	NO
Revenue	1,250,000	$ 125.00	1,440,000	$ 120.00	(190,000)	$ 5.00	-13.2%
Cost per Unit & Ending Inventory	FAC	Variable	FAC	Variable	Normal = Plan
Variable costs	Actual	Actual	Std.	Std	FAC	Variable
Direct Materials	621,600	$ 62.16	720,000	$ 60.00	98,400	$ 2.16	13.7%	Raw Materials (Direct Materials)	$ 73.50	$ 73.50	$ 77.94	$ 77.94	$ 73.50	$ 73.50
Direct Labor	198,000	$ 19.80	192,000	$ 16.00	(6,000)	$ 3.80	-3.1%	Direct Labor	$ 99.20	$ 99.20	$ 105.53	$ 105.53	$ 99.20	$ 99.20
VOH	130,500	$ 13.05	144,000	$ 12.00	13,500	$ 1.05	9.4%	VOH	$ 84.05	$ 84.05	$ 88.75	$ 88.75	$ 84.78	$ 84.78
Total Variable Costs	950,100	$ 95.01	1,056,000	$ 88.00	105,900	$ 7.01	10.0%	FOH	$ 87.59	$ - 0	$ 92.25	$ - 0	$ 88.12	$ - 0
Total	$ 344.35	$ 256.75	$ 364.46	$ 272.21	$ 345.60	$ 257.48
Contribution Margin	299,900	$ 29.99	384,000	$ 32.00	(84,100)	$ (2.01)	-21.9%
CM%	24.0%	26.7%	-2.7%	-10.0%	Beginning Inventory	100,000	100,000	100,000	100,000	100,000	100,000
Ending Inventory $
Fixed Costs	285,000	276,000	(9,000)	-3.3%	Raw Materials (Direct Materials)	$ 7,350,000	$ 7,350,000	$ 7,793,750	$ 7,793,750	$ 7,350,000	$ 7,350,000
Direct Labor	9,920,000	9,920,000	10,552,500	10,552,500	9,920,000	9,920,000
Operating Income	14,900	108,000	(93,100)	-86.2%	VOH	8,405,063	8,405,063	8,875,000	8,875,000	8,477,612	8,477,612
FOH	8,759,494	0	9,225,000	0	8,811,940	0
Total	$ 34,434,557	$ 25,675,063	$ 36,446,250	$ 27,221,250	$ 34,559,552	$ 25,747,612
Favorable/	(Unfavorable)
Level 2	Sales	Flex
Webb Company	Actual	Budget	Flexible Budget	Volume	Budget	Computational Template
Amount	Per Unit	Amount	Per Unit	Amount	Per Unit	Variance	Variance
Units	10,000	12,000	10,000	(2,000)	0	Actual	Standard	Normal
83.3%	Materials	Purchase price	Actual x	Standard x	Actual x
Usage per Unit	Actual x	Standard x	Actual x
Revenue	1,250,000	$ 125.00	1,440,000	$ 120.00	1,200,000	$ 120.00	(240,000)	50,000	Units	Actual	Actual	Actual
Variance on P&L	No	Yes	No
Variable costs	Labor	Rate per DL .Hr.	Actual	Standard x	Actual
Direct Materials	621,600	$ 62.16	720,000	$ 60.00	600,000	$ 60.00	(120,000)	21,600	Hrs, per Unit	Actual	Standard x	Actual
Direct Labor	198,000	$ 19.80	192,000	$ 16.00	160,000	$ 16.00	(32,000)	38,000	Units	Actual	Actual	Actual
VOH	130,500	$ 13.05	144,000	$ 12.00	120,000	$ 12.00	(24,000)	10,500	Variance on P&L	No	Yes	No
Total Variable Costs	950,100	$ 95.01	1,056,000	$ 88.00	880,000	$ 88.00	(176,000)	70,100	Overhead *	Rate per Hr.	Actual	Standard x	Standard x
Hrs. per Unit	Actual	Standard x	Actual x
Contribution Margin	299,900	$ 29.99	384,000	$ 32.00	320,000	$ 32.00	(64,000)	(20,100)	Units	Actual	Actual	Actual
CM%	24.0%	26.7%	26.7%	0.0%	-2.7%	Variance on P&L	No	Yes	Yes
Over/Under absorbed OH
Fixed Costs	285,000	276,000	276,000	0	9,000
* if Direct Fixed Mfg. OH is recognized then Normal same as DM or DL
Operating Income	14,900	108,000	44,000	(64,000)	(29,100)
Level 3	Computation of Absorption / Variances
Selling price variance	FAC	Variable	FAC	Variable	Normal = Plan
Actual SP	$ 125.00	a	Actual	Actual	Std.	Std	FAC	Variable
Budget SP	$ 120.00	b		Production Units	1,975,000	1,975,000	1,975,000	1,975,000	1,975,000	1,975,000
∆ S	elling Price	$ 5.00	c	a - b	Sales Units	1,875,000	1,875,000	1,875,000	1,875,000	1,875,000	1,875,000

Actual units	10,000	d	DM unit price	$ 7.00	$ 7.00	$ 7.25	$ 7.25	$ 7.25	$ 7.25
DM qty./unit	$ 10.50	$ 10.50	$ 10.75	$ 10.75	$ 10.50	$ 10.50
Selling Price Variance	$ 50,000	e	c x d	DM $ /unit	$ 73.50	$ 73.50	$ 77.94	$ 77.94	$ 73.50	$ 73.50
Total	145,162,500	145,162,500	153,926,563	153,926,563	145,162,500	145,162,500
Variance (Fav)/Unfav	(8,764,063)	(8,764,063)	- 0	- 0
Sales volume variance
Budget CM$/unit	$ 32.00	f	DL Hrs per unit	$ 6.40	$ 6.40	$ 6.70	$ 6.70	$ 6.40	$ 6.40
∆ Units	(2,000)	g	$/DL Hr.	$ 15.50	$ 15.50	$ 15.75	$ 15.75	$ 15.50	$ 15.50
Variance	(64,000)	h	g x f	DL$ Unit	$ 99.20	$ 99.20	$ 105.53	$ 105.53	$ 99.20	$ 99.20
Actual	Budget	Total:	195,920,000	195,920,000	208,411,875	208,411,875	195,920,000	195,920,000
Sales Mix Variance	PL1	40%	PL1	50%	Variance (Fav)/Unfav	(12,491,875)	(12,491,875)	- 0	- 0
∆ CM% due to Mix	-1.2%	i	PL2	60%	Pl2	50%
Actual sales	1,250,000	j	PL1 CM%	29.5%	PL1 CM%	28.7%	Absorption for Std. or COGS for Actual	Absorbed	Absorbed	Absorbed	Absorbed
Mix variance	(15,250)	I x j	PL 2 CM%	22.8%	PL 2 CM%	24.7%	VOH Unit	$ 84.05	$ 84.05	$ 88.75	$ 88.75	$ 84.78	$ 84.78
CM%	25.48%	CM%	26.70%	FOH Unit	$ 87.59	$ - 0	$ 92.25	$ - 0	$ 88.12	$ - 0
VOH: Manufacturing	$ 166,000,000	$ 166,000,000	$ 175,281,250	$ 175,281,250	$ 167,432,836	$ 167,432,836
Sales Quantity variance	FOH: Manufacturing	$ 173,000,000	$ 173,000,000	$ 182,193,750	$ - 0	$ 174,035,821	$ - 0
Sales volume variance	(64,000)	Actual ASP	$ 125.00
Mix variance	(15,250)	Budget ASP	$ 120.00	(Over)/Under Absorbed
Quantity Variance	(48,750)	∆ ASP	$ 5.00	VOH Variance	(9,281,250)	(9,281,250)	(1,432,836)	(1,432,836)
Actual Units	10,000	FOH Variance	(9,193,750)	(1,035,821)
Sales Price Variance	50,000	Sale Price Variance	$ 50,000
Sales Mix Variance	(15,250)	a
Sales Quantity variance	(48,750)	b
Sales volume variance	(64,000)	a + b = c	Statement of Income
Flex budget variance	(29,100)	d
Total variance	(93,100)	c + d	FAC	Variable	FAC	Variable	Normal = Plan
Actual	Actual	Std.	Std	FAC	Variable
Level 3	Units Produced	1,975,000	1,975,000	1,975,000	1,975,000	1,975,000	1,975,000
Input Variances:	Units Sold	1,875,000	1,875,000	1,875,000	1,875,000	1,875,000	1,875,000
Net Revenue	$ 984,375,000	$ 984,375,000	$ 984,375,000	$ 984,375,000	$ 984,375,000	$ 984,375,000
Sales Price Variance	50,000	Cost of Goods Sold
Material	137,812,500	137,812,500	137,812,500	137,812,500
Direct Materials	0	Labor	186,000,000	186,000,000	186,000,000	186,000,000
Direct Labor	0	Variable Overhead	157,594,937	157,594,937
VOH	0	Fixed Overhead	164,240,506	- 0
Standard Material	146,132,813	146,132,813
Unit of measure►	Sq.yards	Hours	Standard Labor	197,859,375	197,859,375
Budget input Qty per Unit	2	0.80	z	data	Standard VOH	166,406,250	166,406,250	158,955,224	158,955,224
Direct	Direct	Standard Fxd.OH	172,968,750	- 0	165,223,881	- 0
Materials	Labor	Ref#	Formula	Material variance	(8,764,063)	(8,764,063)	- 0	- 0
Actual Input Quantity	22,200	9,000	a	data	Labor variance	(12,491,875)	(12,491,875)	- 0	- 0
Actual Input Unit Price	$ 28.00	$ 22.00	b	data	VOH (Over)/ Under Abs.	(9,281,250)	(9,281,250)	(1,432,836)	(1,432,836)
Actual Total input cost	621,600	198,000	c	a x b	FXD OH (Over) under Absorbed	(9,193,750)	(1,035,821)
Actual Units	10,000	10,000	d	data	Total COGS	645,647,943	481,407,437	643,636,250	479,861,250	645,522,948	481,334,888
Budget units	12,000	12,000	e	data	*
Budgeted Input Unit Price	$ 30.00	$ 20.00	f	data	Gross Margin	502,967,563	504,513,750	503,040,112
Act. Input qty. x Budget unit Price	666,000	180,000	g	a x f	Gross Profit	338,727,057	340,738,750	338,852,052
Flex Input Costs	600,000	160,000	h	d x f x z	Variable Operating Expense	57,262,000	57,262,000	57,262,000
Contribution Margin	445,705,563	- 0	447,251,750	- 0	445,778,112
Favorable/	(Unfavorable)	Price Variance	44,400	(18,000)	i	g - c
Favorable/	(Unfavorable)	Efficiency-Usage Variance	(66,000)	(20,000)	j	h - g	( a x ( d x z )) x f	Fixed Manufacturing Costs	173,000,000	173,000,000	173,000,000
Favorable/	(Unfavorable)	Flex budget Variance	(21,600)	(38,000)	k	I + j	Fixed Operating Expense	116,895,000	116,895,000	116,895,000
Total Operating Expense	174,157,000	174,157,000	174,157,000
Operating Income	$ 164,570,057	$ 155,810,563	$ 166,581,750	$ 157,356,750	$ 164,695,052	$ 155,883,112
Summary
Variance	* = If Material portion of variances capitalized to Inventory
Actual	Time phasing of variances incurred not considered in this example
to
Budget	(Fav)/Unfav
Variances
Revenue	(190,000)	Material variance	(8,764,063)
Labor variance	(12,491,875)
Variable costs	VOH (Over)/ Under Abs.	(9,281,250)
Direct Materials	98,400	FXD OH (Over) under Absorbed	(9,193,750)
Direct Labor	(6,000)	Total:	(39,730,938)
VOH	13,500
Total Variable Costs	105,900	Ending Inventory Units	100,000
Total annual Production	1,975,000
Contribution Margin	(84,100)	Flexible Budget Variance	% production on-hand	5.06%
CM%	(0)	Sales	Selling	Flexible	Usage
Volume	Price	Budget	Price	Efficiency	Flexible	Variances capitalized if material	(2,011,693)	debit COGS, credit inventory
Fixed Costs	(9,000)	Variance	Variance	Variance	Variance	Variance	Budget	Standard Format Operating Income B4 variance recap	$ 166,581,750
Adjusted Standard Operating Income for recap	164,570,057	equals	Operating Income at actual
Operating Income	(93,100)	(64,000)	(29,100)	(93,100)	% change	-1.21%
Inventory @ Standard	$ 36,446,250
Revenue	50,000	Inventory at Std. Adjusted for Adjusted for recap	34,434,557
% change	-5.52%
Direct Materials	44,400	(66,000)	(21,600)
Direct Labor	(18,000)	(20,000)	(38,000)	Inventory @ Actual	$ 34,434,557
VOH	(10,500)	(10,500)	Inventory at Std. B4 variance recap	$ 34,434,557
Total Variable Costs	50,000	(10,500)	26,400	(86,000)	(20,100)	Inventory at actual = the inventory at standard adjusted to recap variances
Fixed Costs	(9,000)	(9,000)	Second Example
Operating Income	(64,000)	50,000	(19,500)	26,400	(86,000)	(29,100)	Product ABC3
Actual	Standard to set OH rates
Production	5,500	5,850	Basis DL Hours
Std.	Actual	Standard	Actual	Normal
Other Variances	BOM	Standard	Standard	Actual	price	price	$s	$s	$s
Quantity/Ea	Quantity/Ea	Consumption	Consumption	Each	each	to Inventory	Consumption	Consumption
Market Share Variance	Aableticks	6.000	6.030	33,165	34,120	$ 4.2300	$ 4.2000	140,288	143,304	143,304
Actual Market Size	7,500,000	m	data	Plastic sizers	12.000	12.580	69,190	70,500	0.0550	0.0590	3,805	4,160	4,160
Budget Market Size	7,575,000	n	data	Frames	1.000	1.001	5,506	5,522	12.2500	13.1200	67,442	72,449	72,449
Actual Revenue	1,250,000	p	data	fastener	44.000	49.000	269,500	261,250	0.0006	0.0006	162	157	157
Actual Market Share	16.7%	q	p / m
Budget CM%	26.7%	r	data	Hours or per Hr.
Budget Revenue	1,440,000	s	data	Direct Labor	3.61	3.98	21,890	21,450	12.75	13.10	70,125	72,050	72,050
Budget Market Share	19.0%	t	s / n
Actual CM$	299,900	u	data	VOH Spending	373,336	Actual Hrs. each	351,000	337,194	337,194
Flex market share CM$	333,333	v	m x q x r	FOH Spending	493,527	3.90	464,000	410,253	410,253
Actual market @ budget share-CM%	380,198	w	m x t r	VOH/Hr.	$ 16.03	$ 15.72	343,945
Budget CM$	384,000	z	data	FOH/Hr.	$ 21.20	$ 19.13	454,673
Market Share Variance	(46,865)	x	v - w	VOH/Unit	$ 63.82	$ 61.31	351,000
Market Size Variance	(3,802)	y	w - z	FOH/Unit	$ 84.36	$ 74.59	464,000
Sale Quantity Variance	(50,667)	aa	x + y
Normal	Std.	Actual
Mix Variance	Unit Cost	Material	$ 40.01	38.49	40.01
Materials	DL	Labor	50.75	50.75	50.75
Efficeincy Variance:	(66,000)	(20,000)	VOH	62.54	$ 63.82	$ 61.31
FOH	82.67	$ 84.36	$ 74.59
Total Budget Units of Input	12,000	ba	data	Total	$ 235.96	$ 237.42	$ 226.66
Actual unit of Input	10,000	bb	data
Budgeted PL1 Unitts %	50.0%	bc	data
Budget PL2 Units %	50.0%	bd	data
Budget input unit per unit PL1	1.5	be	data
Budget input unit per unit PL2	2.5	bf	data
Actual PL1 Units %	45.0%	bg	data
Actual PL2 Units %	55.0%	bh	data
Busgeted input units for Actual Units out	20,000	bi	(bb x bc x be) + (bb x bd x bf)
Actual.input units-Bud.mix bud price	20,500	bj	(bb x bg x be) + (bb x bh x bf)
Budgeted input price	$ 30.00	bk	data
Mix Varaince $s	(15,000)	bl	(bi - bj) x bk	Changed only mix
Yield variance $	(51,000)	bn	bp - bl
Efficienct variance$	(66,000)	bp	above

This is not for ACC 220

Ch.10 StdCost

Efficiency Variances

Materials:

ECN Engineering change notice

Engineering change to Bill-of-materials

Scrap variance

Production not to specifications

Vendor material not to specifications

Usage Variance

Qty. usage exceeds allowance net of other variances

Direct Labor

Productivity: Downtimes

Material shortages

Process downtime

Engineering change to process

Efficiency

time on productive activity compare with

time allowed to produce

Excel 1

Each

per X33

Ea.subass'y

Table

21390

Bill of Material: X33 Table

Waste

Subassy.

Std.

Material

3.8

41400

Scrap

Std.

Total

Std.

11020

62790

P/N

Item

Qty

Allow

Usage

Price

Cost ea.

20680

9.100

AA2

Top Assembly

unit

1 in X33

42471

60060

a77

Metal frame

unit

0.50%

1.005

$ 11.00

$ 11.055

45191

14600

l22

Laminate cover

sq.'

10.200

$ 0.75

$ 7.650

1212

3500

s44

side trim

linear ft.

9.2

9.568

$ 0.22

$ 2.105

2952

6700

t51

top cover

sq.'

10.100

$ 4.25

$ 42.925

4634

84860

LL2

Leg assemblies

unit

4 in X33

909

M98

Metal tubing

linear ft.

3.180

12.720

$ 1.89

$ 6.010

$ 24.041

4 in X33

3024

FF8

end tabs

unit

0.40%

1.004

4.016

$ 0.04

$ 0.040

$ 0.161

4403

Std.

44631

Total

$ 87.936

Cost

51471

3.01

Excel 2

Time & motion

Engineered

Budget

Number

Ea.subass'y

Table

Process [Router]

Labor

std. time

Allow

100%

Prior

Period

of minutes

Labor Hr.

Labor

For simplicity 1-step assembly - may be many steps

per ass'y

Time

Std.

Period

Prod.%

Std.

Qty per

Qty

PFD

Time

Productivity

for Std.

Minutes

Price

Cost ea.

LL2

Leg assemblies

Minutes

6.0

12%

6.8181818182

89%

93%

7.331

$ 12.00

$ 1.466

$ 5.865

per table

AA2

Top Assembly

Minutes

11.5

12%

13.068

92%

94%

13.9023210832

$ 14.75

$ 3.418

per table

Can

6.0

89%

Use

+G46/(1-H46)

Total

$ 9.283

Cost

This

6 / (1 - 12%)

Variable OH

LL2

7.331

29.326

AA2

13.902

VOH rate/dl.hr.

Minutes

43.228

$ 6.667

$ 4.803

VOH per

X33

Given in example

Excel 3

ColaCo

Example: Overhead Variances Apx.

Std. each

Qty. 200 units

Production and Machine-Hour Data

.45 lbs. /unit

Actual

Budget

ed production

30,000

units

$2.60 per lb

100 lbs

Standard

machine-hours per

unit

Std.

3.00

hours

90 lbs. total std

$295

Budget

machine-hours

90,000

hours

$234.00

= .50 ilbs./unit

Actual

production

28,000

units

each

3.00

= $2.95/unit

Standard machine-hours

allowed for the

actual production

84,000

hours

act @ std Q

made

28,000

∆

price/lb

$0.35

Actual

machine-hours

88,000

hours

∆

lbs. unit

0.05

Cost / Spending Data

Quantity/Efficiency/Productivy

BUDGET:

Rate per machine hour

0.05

200

$2.60

$26.00

Budget

VOH

-variable manufacturing overhead

$ 90,000

$1.000

Std.

90000

$ 1.000

∆

Qty. each

std

Budget

F MFG. OH

-fixed manufacturing overhead

270,000

$3.000

Std.

$ 270,000

90,000

10 lbs X

$26.00

= $26.00

Total budget

ed manufacturing overhead

$ 360,000

$4.000

Std.

$ 1.000

$ 3.000

ACTUAL:

Rate per Actual hour

Price

Actual variable

manufacturing overhead

given

$ 100,000

$1.136

$ 100,000

88,000

0.35

100.00

$35.00

Actual fixed

manufacturing overhead

given

280,000

$3.182

$ 280,000

88,000

∆

Price/lb.

Actual

Total actual

manufacturing overhead

$ 380,000

$4.318

Act. OH Rate

$61.00

FLEX

budget for Volume

Mfg. OH

Units

std hrs for act. Qty.

84,000

Variable OH

$ 84,000

$ 1.000

Budget rate

Fixed OH

$ 270,000

fixed

252000

Total

$ 354,000

Act. @ Std.

$ @ Std

$ 354,000

Budget Flex.d

Applied or Standard or Absorbed overhead-Mfg.OH

$/Driver--Rate

# Hrs.

Act. FG Qty

w. Act. Qty

$ 380,000

Actual

Units

std hrs for act. Qty.

84,000

3.00

28000

$ 26,000

Variance

Variable OH

$ 84,000

$1.000

3.00

28000

$84,000

Fixed OH

$ 252,000

$3.000

3.00

28000

$252,000

Total

$ 336,000

$4.000

$336,000

into inventory at STD.

Excel 4

Budget vs. Actual

Variable Overhead

Managerial Accounting:

Variable

Fixed

Total

Plan

$ 90,000

$ 270,000

$ 360,000

FLEX

$ 84,000

$ 270,000

$ 354,000

Actual

$ 100,000

$ 280,000

$ 380,000

Fav/[Unfav]

Volume

$ 6,000

$ - 0

$ 6,000

Fav

spend less

Fav/[Unfav]

Spending

$ (16,000)

$ (10,000)

$ (26,000)

UnFav

Spend more

check

Total/Net variances

$ (10,000)

$ (20,000)

UnFav

Spend more

90,000

Budget Qty

84,000

Std Qty. Actual Prodctn.

Actual vs. Applied

(6,000)

difference

Financial Accounting

Variable

Fixed

Total

Units

$ 4.000

Std. Rate

Actual

$ 100,000

$ 280,000

$ 380,000

88,000

$ 1.136

$ 1.000

$ (24,000)

under absorded at Std

Applied or Standard or Absorbed overhead-Mfg.OH

$ 84,000

$ 252,000

$ 336,000

84,000

Fav/(Unfav)

88,000

84,000

$ 6,000

volume

Rate variance

$ (12,000)

(0.136)

∆

rate. X act.hrs.

$ (26,000)

spending

Efficiency variance

$ (4,000)

(4000)

∆

Hrs. X std. rate

$ (44,000)

sum

Spending or budget variance

$ (10,000)

∆

Actual Spdg - Applied OH

Fixed overhead volume variance Applied/Absorption variance

$ (18,000)

∆

Budget or Plan Spending - Actual spdg. OR ∆ Hrs. Budget - std hrs X std.rate

$ 252,000

$ (270,000)

$ (18,000)

Total/Net variances

$ (44,000)

$ (28,000)

BUDGET:

ACTUAL:

270,000

280,000

(10,000)

BUDGET:

Applied or Standard or Absorbed overhead-Mfg.OH

90,000

84,000

(6,000)

$ 3.000

std fxd rate

(18,000)

Excel 5

Doing the Accounting with Standard Costs

Only standard material costs enter inventory

Purchase price variances on materials are removed at receipt

Only standard material costs move through inventory

variances are removed at each stage of production

Only std. labor & OH are input to inventory

Labor rate variances are removed at payroll/accrued P/R

Only std. labor & OH are input to inventory

variances are removed at each stage of production

Quarter 2 Year 2xx1

Materials Received

material purchased at std. value

Matl. Inventory@Std

500

Std. Value

material purchased at actual cost

A/P

525

Actual

Difference std - to actual

variance acctg in CoGS

Variance

if Act > std

If std > act

unfav.var.

Materials Used

Materials into WIP @ std.

WIP

615

Std. Value

Materials into WIP @ std.

Matl. Inventory@Std

615

Std. Value

Std. matl in Production Completed

600

Std. Value @ std. qty per unit

Matl. @ std. used in Production Completed

WIP

615

Std. per unit @ act. Qty used

Difference std - to actual

variance acctg in CoGS

Qty. @ Std per unit

if Act > std Unfav

If std > act

unfav.var.

Labor Used

Direct labor Paid

WIP

375

DL paid @ std. rate

382

DL rate variance

Variance

Difference std - to actual

FAV variance acctg in CoGS

FAV

if Act > std Unfav

If std > act: FAV

Production Completed

402

Std $ @ std qty per unit

Production Completed

WIP

423

Difference std - to actual

variance acctg in CoGS

unfav.var.

if Act > std Unfav

If std > act: FAV

OVERHEAD

above example

Incurred Actual Expenses

$ 380,000

Spending accts.

Expense accounts [variance acct. for applies OH] in CoGS

$ 380,000

A/p, Cash, Accrued etc.

Apply or Absorb OH to production

Inventory

$ 336,000

aborption accts

Variance account in CoGS

$ 336,000

The result is a variance in CoGS of the difference of $380K dr. & $336K credit

a $44K un fav Variance

Capitalized Variances

: Variance Recorded in CoGS, if material then portion is to be capitalized into inventory

Production Variances:

$000

Material

$15

Unfav

Days inventory on-hand at QE

Labor

$21

Unfav

$44

Unfav

Days of Qtr

$80

Unfav

55.6%

% of variances incurrred in inventory

55.6%

Net variances

$80

Variances into inventory -

WIP & FG

44.4

Unfav

Dr. Inventory

Cr. CoGS

RM similar computations

ACC220---Ch.10 Std Cost---HCT---&P of &N---&D,&T---&F,&A

Ch.13 CapX

Chapter 13 Capital Budgeting	Excel 1
Cost	$ 3,170	data	Year	$	PV$
Life	4 years	0	$ (3,170)	$ (3,170)
Salvage value	zero	1	$ 1,000	$ 909
Increase in annual cash inflows AT	1,000	2	$ 1,000	$ 826
given	Hurdle rate	10.0%	3	$ 1,000	$ 751
Residual	0.0	4	$ 1,000	$ 683
$ (0)	$ (0)
initial [0]	1	2	3	4	Year
Buy Machine	(3,170)
Cash inflow	1,000	1,000	1,000	1,000	No outflows
Net cash flow	(3,170)	1,000	1,000	1,000	1,000
net nominal cash flow	(3,170)	1,000	1,000	1,000	1,000	(0.13)
discounted each year	(3,170)	909	826	751	683	3,170
1000/(1+10%)^1	1000/(1+10%)^3
Sum of discounted cash flows + initial	(0)	1000/(1+10%)^2	1000/(1+10%)^4
Formula	(0.13)	=NPV(C6,D13:G13)+C13
Cost of Capital	PE on	WACC
Excel 2	Additional	Future	Weighted Cost of Capital
$billion	Interst rate	PE now	earnings
Debt	50	8.0%	0.25	2.0%
Market cap	150	18	14.5	0.75	5.2%	Hurdle without risk adjustment
5.6%	6.9%	7.2%
PRETAX basis	7.2%
10.2%
Hurdle Rate	10.2%	70% average cost of capital/ 30% negative	70%	Risk adjustment
30% failure	success
Risk factors vary: productivity project risk may be lower than new product risk
Lester	Cost and revenue information	Excel 3
Excel 3	Cost of special equipment	$160,000
Working capital required	100,000	Tax
Relining equipment in 3 years	30,000	rate given as
Salvage value of equipment in 5 years	5,000	25%
TAX RATE	Annual cash revenue and costs:
CONSIDERS	Sales revenue from parts	803,300
DEDUCTION OF	Cost of parts sold	400,000
DEPRECIATION	Salaries, shipping, etc.	270,000	133,300	profit B4 tax	75%	Profitability
EXPENSE	Tax Rate =	25%	99,975	Profit after tax	index
NOT COVERED	$ 260,000	Initial investment
THIS CHAPTER	Hurdle rate:	10%	$ 161,641	PV
If WC now	By hand	62.2%
Period	Equipment	WC	Profit	Net Cash Flow	PV by Year	IRR Proof
0	($160,000)	($100,000)	($260,000)	$ (260,000)	$ (260,000)
1	$99,975	$99,975	$ 90,886	=+E47/((1+F$43)^A47)	$ 77,108
2	$99,975	$99,975	$ 82,624	$ 59,471
Relining Eqpmnt 3	($30,000)	$99,975	$69,975	$ 52,573	$ 32,104
4	$99,975	$99,975	$ 68,284	$ 35,377
W/C recapture- sales used Eqpmnt 5	$5,000	$100,000	$99,975	$204,975	$ 127,273	$ 161,641	$ 55,941
$ 0
NPV	$ 161,641	+E46+NPV(F43,E47:E51)	Sum
Excel Function	IRR	29.7%	+IRR(E46:E51,0.1)
29.7%
DENNY
Excel 4
Project Life:	4	years
Eqpmnt cost	$ 250,000	$ (270,000)	$ (270,000)
Upgrade Capital	$ 90,000	end 2 yrs.	Profitability	$ 120,000	101141.363626805
Salvage AT	$ 10,000	16,667	Before tax @ 40%	index	$ 30,000	21311.6154922698	Back to PPT 21
Working Capital	$ 20,000	$ 270,000	$ 120,000	71849.5283992767	Back to PPT 21
Cash flow	$ 120,000	per year assumed AT	$ 28,156	$ 150,000	75697.4924817257	Back to PPT 21
Hurdle Rate	14%	Min.acceptable rate=Discount Rate	one-stream	10.4%	$ 0	Back to PPT 21
Nominal $s	Back to PPT 21
Cash flow per year	Inflow	Working	Net	NPV	at IRR	Back to PPT 21
Period	Outflow	Annual	Salvage	Capital	Cash Flow	BY hand	18.6%	Back to PPT 21
0	$ (250,000)	$ (20,000)	$ (270,000)	$ (270,000)	$ (270,000)	(270,000)	Back to PPT 21
1	$ 120,000	$ 120,000	105,263	101,141	120,000	=+K75/(1+$B$70)^A75	Back to PPT 21
2	$ (90,000)	$ 120,000	$ 30,000	23,084	21,312	30,000	=+K76/(1+$B$70)^A76	Back to PPT 21
3	$ 120,000	$ 120,000	80,997	71,850	120,000	=+K77/(1+$B$70)^A77	Back to PPT 21
4	$ 120,000	$ 10,000	$ 20,000	$ 150,000	88,812	$ 28,156	75,697	150,000	=+K78/(1+$B$70)^A78	Back to PPT 21
sum	$ 0	Back to PPT 21
NPV	@ Hurdle Rate	$ 28,156	18.6%	$ 150,000	$ 28,156	Check IRR	Back to PPT 21
IRR	18.6%	+IRR(F74:F78,0.16)	+F74+NPV(B70,F75:F78)	Back to PPT 21
Hurdle Rate	14%	Min.acceptable rate	Excel IRR	@ IRR %	Excel 5
Year	by Hand
0	($104,320)	$ (104,320)
1	$20,000	17,544	=+E86/(1+$E$96)^D86	Proof	;=+IRR(E85:E95,0.2)
2	$20,000	15,389	=+E87/(1+$E$96)^D87	Proof	14.0%
3	$20,000	13,499	=+E88/(1+$E$96)^D88	Proof
4	$20,000	11,841	=+E89/(1+$E$96)^D89	Proof
5	$20,000	10,387	=+E90/(1+$E$96)^D90	Proof
6	$20,000	9,111	=+E91/(1+$E$96)^D91	Proof
7	$20,000	7,992	=+E92/(1+$E$96)^D92	Proof
8	$20,000	7,011	=+E93/(1+$E$96)^D93	Proof
9	$20,000	6,150	=+E94/(1+$E$96)^D94	Proof	TAX RATE 25%
14%	EXCEL "IRR" function	10	$20,000	5,395	=+E95/(1+$E$96)^D95	Proof
=+IRR(E85:E95,.22)	14.0%	0	Verfied
266666.666666667
Quick Check	Excel 6
Year	Proof by hand
0	$ (79,310)	($79,310)
1	$ 22,000	$19,643
2	$ 22,000	$17,539
3	$ 22,000	$15,660
4	$ 22,000	$13,983
5	$ 22,000	$12,485
IRR	12.0%	$0	Check IRR
+IRR(F100:F105,0.15)
12%
CAR
WASH
Excel 7	IRR problem
NOT NPV problem
A	!0% not used
(300,000)	New	Investment	(300,000)
(175,000)	OLD	Investment	40,000
(125,000)	Difference	(260,000)
B	40,000	OLD	sale of Old	Net invest
(85,000)	NET difference	for New
C
Total Cost Approach	Incemental Only
Discount Rate	10%	OLD	NEW	New - Old
Term/years	10	10	∆ Cash flow	∆ Cash flow
Year	0	(175,000)	(260,000)	-$300K+$40K	(85,000)	(85,000)
OLD	1	45,000	60,000	15,000	13,636	=+H129/(1+B$126)^B129
Profitability	2	45,000	60,000	Same	15,000	12,397	=+H130/(1+B$126)^B130
index	3	45,000	60,000	60,000	◄Answer	►	15,000	11,270	=+H131/(1+B$126)^B131
$175,000	4	45,000	60,000	(50,000)	15,000	10,245	=+H132/(1+B$126)^B132
$56,348	5	45,000	60,000	10,000	15,000	9,314	=+H133/(1+B$126)^B133
32.2%	6	(35,000)	10,000	replace brushes	45,000	25,401	=+H134/(1+B$126)^B134
7	45,000	60,000	45,000	15,000	7,697	=+H135/(1+B$126)^B135
NEW	8	45,000	60,000	(80,000)	15,000	6,998	=+H136/(1+B$126)^B136	$56,347.61
Profitability	9	45,000	60,000	(35,000)	15,000	6,361	=+H137/(1+B$126)^B137
index	10	45,000	67,000	+$60k + $7k	22,000	8,482	=+H138/(1+B$126)^B138	83,149.133
$260,000	=	+IRR	(C128:C138,0.15)	17.6%	17.2%	Greater NPV	16.4%
$83,149	=	+NPV	(0.1,C129:C138)+C128	$56,348	$83,149	$26,802	NPV @ 10%	$26,802	$ 26,802
32.0%	Profitability Index	=-C140/C128	32.2%	32.0%	NPV/Initial investment
+56348/175000	+83149/260000	NEW=More NPV $s @ rate > disc. Rate	56,348	=+C128+NPV(B126,C129:C138)
Go to Slide # 41
Quick Check
Excel 8
s
Incremental
Nominal	Discounted
A - B	By Hand
Rate	14%	A	B	∆	∆ NPV	∆
0	($80,000)	($60,000)	($20,000)	($20,000)	($20,000)	=+F158/(1+$B$157)^B158
1	$20,000	$16,000	$4,000	$4,000	$3,509	=+F159/(1+$B$157)^B159
2	$20,000	$16,000	$4,000	$4,000	$3,078	=+F160/(1+$B$157)^B160
3	$20,000	$16,000	$4,000	$4,000	$2,700	=+F161/(1+$B$157)^B161
Answer = "b."	4	$20,000	$16,000	$4,000	$4,000	$2,368	=+F162/(1+$B$157)^B162	13.4%
5	$30,000	$24,000	$6,000	$6,000	$3,116	=+F163/(1+$B$157)^B163
IRR	10.9%	13.4%	($5,229)
13.4%	NPV	($6,145)	($916)	($5,229)	$ 2,000	$ (5,229)
Profitability Index	-7.7%	-1.5%	NPV/Initial investment	=+E158+NPV(B157,E159:E163)
Furniture
Excel 9
-21000+9000
Incremental
Rate	BETTER	Old	New	∆ NPV
10%	Old	New	∆	PV/year	PV/year	PV/year
0	($4,500)	($12,000)	$7,500	($4,500)	($12,000)	$7,500	=+D183/((1+$A$182)^$A183)
1	($10,000)	($6,000)	($4,000)	($9,091)	($5,455)	($3,636)	=+D184/((1+$A$182)^$A184)
2	($10,000)	($6,000)	($4,000)	($8,264)	($4,959)	($3,306)	=+D185/((1+$A$182)^$A185)
3	($10,000)	($6,000)	($4,000)	($7,513)	($4,508)	($3,005)	=+D186/((1+$A$182)^$A186)
4	($10,000)	($6,000)	($4,000)	($6,830)	($4,098)	($2,732)	=+D187/((1+$A$182)^$A187)
5	($9,750)	($3,000)	($6,750)	($6,054)	($1,863)	($4,191)	=+D188/((1+$A$182)^$A188)
NPV function excel	less cost	discounted by year
NPV	($42,253)	($32,882)	($9,371)	$ (42,253)	$ (32,882)	$ (9,371)
Go to Slide # 45
BAY
Excel 10
Rate	14%	$34,320	$ (100,000)
Needed return	$34,320	14%
+PMT(F197,A207,D203)	4
+pmt(rate, nper,pv]	$34,320	($34,320.48)
rate = 14%, Nper=4, pv = ($100K)	PMT function
answer = "c."
PV$	PV$
Year	Tangible	Intangible	Total	PV$	Tangible	Intangible	Proof
0	$ (100,000)	$ - 0	$ (100,000)	Nominal	$ (100,000)	at 14%	at 14%	$34,320.48	=+NPV(G216,L205:L224)
1	$ 10,000	24,320.48	$34,320	Needed return	$ 30,106	$ 8,772	$ 21,334	$1,040,000.00	$s
2	$ 10,000	24,320.48	$ 34,320	Needed return	$ 26,408	$ 7,695	$ 18,714	1	0
3	$ 10,000	24,320.48	$ 34,320	Needed return	$ 23,165	$ 6,750	$ 16,416	2	0
4	$ 10,000	24,320.48	$ 34,320	Needed return	$ 20,320	$ 5,921	$ 14,400	3	0
Proof	$ (60,000)	$ 97,282	14.0%	IRR	$ 100,000	$ 29,137	$ 70,863	4	0
$0.00	NPV	5	0
6	0
Need	TANKER	Excel 11	7	0
Salvage	8	0
to be	Pv of project End salvage value = $1040,000	9	0
$1,040,000	Negative PV without salvage	$ 1,040,000	10	0	1,040,000
to meet	20	Years	11	0	20
12%	12%	hurdle rate	12	0	12.0%
requied	PV x (1 + rate)^years	$ 10,032,145	1.12 to the 20th power	x shortage	13	0	10,032,145
Hurdle Rate	Future value of	$ 1,040,000	after 20 years	14	0
What future vale has a PV of	$1,040,000	+G214*(1+G216)^G215	15	0
16	0
Excel 12	Daily Grind	Discounted	14%	17	0
Cash flows	∑	Non-Disc	.cash flow	Discounted cash flow	∑	discounted	cash flow	Discount rate 14%	18	0
0	$ (140,000)	$ - 0	$ (140,000)	$ - 0	19	0
1	$ 35,000	$ (105,000)	$ 30,702	$ (109,298)	20	$ 10,032,145
2	$ 35,000	$ (70,000)	$ 26,931	$ (82,367)
3	$ 35,000	$ (35,000)	$ 23,624	$ (58,743)
4	$ 35,000	$ - 0	$ 20,723	$ (38,020)	$ - 0
5	$ 35,000	$ 35,000	$ 18,178	$ (19,842)	$ 35,000
6	$ 35,000	$ 70,000	$ 15,946	$ (3,897)
7	$ 35,000	$ 105,000	$ 13,987	$ 10,091	($3,897)
8	$ 35,000	$ 140,000	$ 12,270	$ 22,360	$13,987
9	$ 35,000	$ 175,000	$ 10,763	$ 33,123	0.28
10	$ 35,000	$ 210,000	$ 9,441	$ 42,564
4.00	Years	6.28
Excel 13	Discounted
Period	Given Data Cash flows	∑ non-Disc.cash flow	Discounted cash flow	∑ discounted cash flow
0	($4,000)	$0	($4,000)	$0
1	$1,000	($3,000)	$877	($3,123)
2	$0	($3,000)	$0	($3,123)
3	$2,200	($800)	$1,485	($1,638)	($572)
4	$1,800	$1,000	$1,066	($572)	$779
5	$1,500	$2,500	$779	$207	0.73
3.44	Years	4.73
($800)	Non-discounted	Discounted
$1,800	aka nominal $	+PV(rate, nper, amt)
(0.44)	=+PV(14%,5,100)
($343.31)
Discount rate 14%
Excel 14	Tax rate	40.0%	since we buy with AT $, savings & income must be AT
Tax effect of depreciation not considered
Discount Rate	14.0%
Project Life	10 Years
Units produced	1	2	3	4	5	6	7	8	9	10
15,000	19,000	23,000	27,000	31,000	35,000	39,000	43,000	47,000	28,000
Alternative 1
Buy a smaller second machine to the one already in use
two machines	180,000	cost second new machine
200,000	replacement current old machine in 5 yrs.
1,800	maintenance cost = $3000 each machine per year	9	yrs
100,000	after 5 years, second machine residual value	100
15,000	residual value of existing old machine when 2nd machine purchase in 5 yrs.	8%
199.90
Alternative 2	BIG better machine
buy big more efficient model	375,000	Cost big machine
sell existing used machine	35,000
maintained per year	13,000
Savings per unit with better machine	$ 1.39
residual of new machine	50,000	after 10 years
Units	15,000	19,000	23,000	27,000	31,000	35,000	39,000	43,000	47,000	28,000
Discount rate	14.0%
Period:	►	initial [0]	1	2	3	4	5	6	7	8	9	10
Alternative 1
second machine	(180,000)
replace first machine	(200,000)
Residual value	15,000	100,000
maintenance	(2,160)	(2,160)	(2,160)	(2,160)	(2,160)	(2,160)	(2,160)	(2,160)	(2,160)	(2,160)
net nominal cash flow	(180,000)	(2,160)	(2,160)	(2,160)	(2,160)	(2,160)	(187,160)	(2,160)	(2,160)	(2,160)	97,840
discounted each year	(180,000)	(1,895)	(1,662)	(1,458)	(1,279)	(1,122)	(85,268)	(863)	(757)	(664)	26,392
Sum of discounted cash flows + initial	(248,576)
Formula	(248,576)
Discount rate	14.0%
Period:	►	initial [0]	1	2	3	4	5	6	7	8	9	10
Alternative 2
second machine	(375,000)
sell existing machine	35,000
residual of new machine	50,000
Savings or less cost per unit	12,510	15,846	19,182	22,518	25,854	29,190	32,526	35,862	39,198	23,352
maintenance	(7,800)	(7,800)	(7,800)	(7,800)	(7,800)	(7,800)	(7,800)	(7,800)	(7,800)	(7,800)
net nominal cash flow	(340,000)	4,710	8,046	11,382	14,718	18,054	21,390	24,726	28,062	31,398	65,552
discounted each year	(340,000)	4,132	6,191	7,683	8,714	9,377	9,745	9,881	9,837	9,655	17,682
Sum of discounted cash flows + initial	(247,103)
Formula	(247,103)	no difference
Change rate
Excel 15
Inflation, FX, etc. not considered
No consideration to tax effect of salvage
would have to be considered - complicating calculations
Discount rate	12.0%	tax rate	30%
Period:	►	0	1	2	3	4	5	6	7	8	9	10
Ref#
Cost of equipment	(300,000)	100,000	A
Working Capital	(75,000)	75,000	B
Capitalized road maintenance	- 0	- 0	- 0	- 0	- 0	(40,000)	C
Nominal each yaer	(375,000)	- 0	- 0	- 0	- 0	- 0	(40,000)	- 0	- 0	- 0	175,000
discounted each year	(375,000)	- 0	- 0	- 0	- 0	- 0	(20,265)	- 0	- 0	- 0	56,345	Sum 1
D
Sales net of expense = pre tax income	130,000	130,000	130,000	130,000	130,000	130,000	130,000	130,000	130,000	130,000	E
SL tax exp. allowance for Depreciation	(30,000)	(30,000)	(30,000)	(30,000)	(30,000)	(38,000)	(38,000)	(38,000)	(38,000)	(38,000)	F
Pre-tax Income	100,000	100,000	100,000	100,000	100,000	92,000	92,000	92,000	92,000	92,000	G
taxes paid	30,000	30,000	30,000	30,000	30,000	27,600	27,600	27,600	27,600	27,600	H
Cash Income +E-((F-E)*tax rate)	100,000	100,000	100,000	100,000	100,000	102,400	102,400	102,400	102,400	119,600	I
J
net nominal Cash income cash flow	100,000	100,000	100,000	100,000	100,000	102,400	102,400	102,400	102,400	102,400	K
discounted each year	89,286	79,719	71,178	63,552	56,743	51,879	46,321	41,358	36,926	32,970	Sum 2
=+E338/(1+$C325)^E326
Sum 1 + Sum 2	(375,000)	89,286	79,719	71,178	63,552	56,743	31,614	46,321	41,358	36,926	89,315
Sum of discounted cash flows + initial	231,011	Sum 1 + Sum 2	By hand
Formula	231,011	=+C332+NPV(C325,D331:M331)+NPV(C325,D340:M340)
3
4	Excerl 15
5
X	Y
100000	100000
8%
X	Y	X	Y	sum
100000	100000	(100,000)
60000	60000	1	55,556	55556	-44444
40000	35000	2	34,294	30007	-14438
25000	3	- 0	19846	5408	-0.727488	3.73
25000	4	- 0	18376	23784
25000	5	- 0	17015	40799
25000	6	- 0	15754	56553
25000	7	- 0	14587	71140
25000	8	- 0	13507	84647
25000	9	- 0	12506	97153
25000	10	- 0	11580	108733
89,849	108,733
No pay back
12%	by hand
1	60,000	53,571.43
2	60,000	47,831.63	=+PV(B355,A360,B356)
3	60,000	42,706.81	ERROR:#REF!
4	60,000	38,131.08
5	60,000	34,045.61
$ 216,287
14%	by hand
0	($343.31)	Excel "PV" function
1	$100	87.72
2	100	76.95
3	100	67.50
4	100	59.21
5	100	51.94
$ 343.31
P r o o f
end period	Beginning	interest	Withdrawal	End
1	$343.31	$48.06	($100.00)	$291.37
2	$291.37	$40.79	($100.00)	$232.16
3	$232.16	$32.50	($100.00)	$164.67
4	$164.67	$23.05	($100.00)	$87.72
5	$87.72	$12.28	($100.00)	$0.00
DEFINITIONS
1	Accounting Rate of Return	= Simple Rate of Return =	Average return	for periods being examined divided by	Average investment	for that period
2	Compound Interest	Interest earned on investment and on interest previously earned [	interest on interest	]
3	Discount Rate	Rate	used to	Reduce	[Discount[	Future Cash Flow	s; Can be WACC; WACC adjusted for Risk: Incremental cost or Cost specific to the Project
4	Discounted Cash Flow	=	DCF	= future cash flows reduced to Present Value Using a Discount Rate
5	Hurdle Rate	Discount /rate which includes	factor for success ratio	on projects; e.g. 70% success rate then increase WACC by 3/7
6	Internal Rate of Return	=	IRR	= computed Rate applied to future cash flow such that the sum of initial investment and future cash flows	= zero
7	Net Present Value	=NPV=Present value reduced by initial investment
8	Nominal Dollars	Non-discounted $s	; spending/savings/returns without discounting
9	Payback Period	Using DCF or using nominal $then the period of time with discount $s that the future cash flows = initial investment.
10	Present Value	=	PV	=The current value of future Cash flows reducing by selected Discount Rate
11	Profitability Index	NPV divided by Initial Investment
12	Salvage Value	=	Residual Value	= RESALE =Amount expected to be resceived from sale/trade-in of intial capital investment item[s]
13	Weighted Average Cost of Capital	=	WACC	= Cost of Capital=Average of the Cost of Debt [Interest after tax and of Cost of Equity [usually through PE Ratio
14	Working Capital	Current Assets less Current liabilities
Simple Example
$1,000	Capital Expenditure	Residual =	0
10%	Discount Rate= Hurdle Rate
period	Returns	Rate
0	Nominal	DCF
1	$400	$364	$400/(1+discount Rate) to # of years power=$400/(1+10%)	^1
2	$450	$372	$450/(1+discount Rate) to # of years power=$450/(1+10%)	^2
3	$500	$376	$500/(1+discount Rate) to # of years power=$500/(1+10%)	^3
$1,350	$1,111
$1,111	$111.19
PV Future CF--DCF	$1,111	($1,000)
NPV--DCF	$111	$111
$1,000	Average investment
$450	Average nominal $ Return
Accounting Rate of Return	45.0%
$111	NPV
Profitability Index	11.1%	$1,000	Initial Investment
1	2	3	◄	Year
Payback Period	Years	$400	$450	$500
Nominal $s	2.30	$400	$450	$150	$1,000
$364	$372	$376
DCF	2.70	$364	$372	$264	$1,000
Capital Expenditure	($1,000)	DCF at
IRR	Year	Nom.Return	16.0%	Discounted
1	$400	$344.90	at
2	$450	$334.57	IRR
3	$500	$320.53	=
IRR	16.0%	$1,000.00	Initial
Proof	Investment
16%

HCT---&P of &N---&D,&T---&F,&A

•Decker Company can purchase a new machine at a cost of $104,320 that will save $26667 per year in cash operating costs. = $20000 AFTER TAX •The machine has a 10-year life.

How large would the salvage value need to be ?

Should Holland open a mine on the property?

Consider the following two investments: Project X Project Y Initial investment $100,000 $100,000 Year 1 cash inflow $60,000 $60,000 Year 2 cash inflow $40,000 $35,000 Year 3-10 cash inflows $0 $25,000 Which project has the shortest payback period? a. Project X b. Project Y c. Cannot be determined Discount rate = 8%

•Decker Company can purchase a new machine at a cost of $104,320 that will save $20,000 per year in cash operating costs. •The machine has a 10-year life.

taxes

after taxes

Proof

$22000 AFTER TAX

CASH INFLOW AFTER TAX

OP.COST AFTER TAX

@10%

Both have DCF > Discount rate

Equal Cash Flows in Susequent Periods

Unequal Cash Flows in Susequent Periods

C-14 Cash Flow

De	bits make cash go DOWN in Cash Flow
Credits make cash go UP
Account category	Normal Balance	Operating	Investing	Financing
Current Asset	Debit	X
Current Asset-Contra	Credit	X
Non-current Asset	Debit	X
Non-current Asset-Contra	Credit	X
Current Liability	Credit	X
Current Liability-Contra	Debit	X
Non-Current Liability	Credit	X
Non-Current Liability-Contra	Debit	X
Equity	Credit	X
Equity-Contra	Debit	X
Income Statement Accounts: Revenue/Income	Credit	X
Income Statement Accounts: Expense/Losses	Debit	X
Other Expense / Loss on sale of Non-current assets	Debit	X
Other income /Gain on sale of Non-current assets	Credit	X
Accumulated Amortization [Amortization Expense]	Credit	X	Add back to net income - Cash UP
Accumulated Depreciation [Depreciation Expense]	Credit	X	Add back to net income - Cash UP
Contra's act opposite from that to which they are contra
Taxes are operating whether deferred tax assets or deferred tax liabilities whether current or non-current	Dr./Cr,
#1	Repaid long term debt of :	$ 600,000	Data Set	#2	Purchase of PPE =	$ 125,000	Data given	Equity Example	Effect
Sale of PPE:NBV = $12000, Cost $24000, sold $14000)	Data Set	Purchase of Intangibles =	$ 95,000	Data given	Cost	$ 85,000	Dr/Cr Balance	2xx2	2xx1	Change	on Cash	Ref
Bought Treasury Stock	$ 12,000	Data Set	Sales of PPE =	$ 43,000	Gain =	$ 6,000	Data given	AD	$ 48,000	Common stock Par Value	C	$450,000	$320,000	$130,000	$130,000	W
Used Treasury Stock of $50,000 to buy PPE	$ 50,000	Data Set	Cost =	$ 85,000	Data given	BV	$ 37,000	Additional Paid-in-Capital	C	$9,670,000	$7,200,000	$2,470,000	$2,470,000	X
Sold common stock of	$ 125,000	Data Set	New Debt =	$ 470,000	Sale	$ 43,000	Treasury Stock	D	($1,054,000)	$0	($1,054,000)	($1,054,000)	Y
Paid dividend of	$ 23,000	Data Set	No Dividends	Retained Earnings	C	$3,200,000	$2,900,000	$300,000	$300,000	Z
Total Equity	C	$12,266,000	$10,420,000	$1,846,000	$1,846,000
Affect on	Class Company, Inc.
Class Company, Inc.	Category	Cash	Balance Sheet as of	Cash up	W	Issued/Sold Common Stock 130000 shares $1 par for $20
Balance Sheet as of	Increase	Increase	12/31/2xx1	12/31/2xx2	Cash	Cash up	X	Issued/Sold Common Stock 130000 shares $1 par for $20
Assets:	12/31/2xx1	12/31/2xx2	(Decrease)	(Decrease)	Assets:	Increase	Increase	Cash Down	Y	Bought Back 62000 shares common stock for $17
Current Assets:	$s	$s	Current Assets:	$s	$s	(Decrease)	(Decrease)	Cash down for dividends	Z	Had NI of $700,000 and Issued Dividends of $400,000
Cash	150,000	316,000	166,000	(166,000)	Cash	200,000	952,110	752,110	752,110
D	Accounts Receivable	355,000	418,000	63,000	(63,000)	D	Accounts Receivable	385,100	438,000	52,900	(52,900)
D	Prepaid Expenses	27,000	19,000	(8,000)	8,000	D	Prepaid Expenses	33,000	29,000	(4,000)	4,000
D	Other Current Assets	15,000	11,000	(4,000)	4,000	D	Other Current Assets	22,000	7,000	(15,000)	15,000
Total Current Assets:	547,000	764,000	217,000	(217,000)	Total Current Assets:	640,100	1,426,110
Plant Property & Equipment	954,000	1,127,000	173,000	(173,000)	D	Plant Property & Equipment	2,700,000	2,740,000	40,000	(40,000)
Cr.	Accumulated Depreciation	332,000	445,000	113,000	113,000	P&L item	Cr. Balance	Accumulated Depreciation	(600,000)	(760,000)	(160,000)	160,000	P&L item
Net Plant Property & Equipment	622,000	682,000	60,000	(60,000)	Net Plant Property & Equipment	2,100,000	1,980,000
Other Non-Current Assets:	Other Non-Current Assets:
D	Intangibles	375,000	350,000	(25,000)	25,000	P&L item	D	Intangibles	500,000	480,000	(20,000)	20,000	P&L item
D	Deferred Loan Placement Costs	25,000	25,000	0	0	P&L item	D	Deferred Loan Placement Costs	30,000	30,000	0	0	P&L item
D	Other Non-Current assets	15,000	14,000	(1,000)	1,000	D	Other Non-Current assets	41,000	37,000	(4,000)	4,000	givern as Oper.
Total Other Non-Current Assets	415,000	389,000	(26,000)	26,000	Total Other Non-Current Assets	571,000	547,000
Total Assets	1,584,000	1,835,000	251,000	(251,000)	Total Assets	3,311,100	3,953,110
Liabilities:	Liabilities:
Current Liabilities	Current Portion of Long Term Debt	260,000	290,000	30,000	30,000
C	Accounts Payable	129,000	139,000	10,000	10,000	C	Accounts Payable	720,000	760,000	40,000	40,000
C	Accrued Expenses	51,000	64,000	13,000	13,000	C	Accrued Expenses	50,000	40,000	(10,000)	(10,000)
C	Current Portion of LT debt	31,000	63,000	32,000	32,000	C	Other Current Liabilities	23,000	11,000	(12,000)	(12,000)
C	Other Current Liabilities	23,000	11,000	(12,000)	(12,000)	Total Current Liabilities	1,053,000	1,101,000
Total Current Liabilities	234,000	277,000	43,000	43,000
Non-Current Liabilities
Non-Current Liabilities	C	Long Term Debt	1,100,000	915,000	(185,000)	(185,000)
C	Long Term Debt	1,100,000	915,000	(185,000)	(185,000)	C	Deferred Income Taxes	55,000	71,000	16,000	16,000
C	Deferred Income Taxes	83,000	99,000	16,000	16,000	P&L item	C	Other Non-current Liabilities	3,000	5,000	2,000	2,000	P&L item
C	Other Non-current Liabilities	14,000	12,000	(2,000)	(2,000)	Operating/given	Total Non-Current Liabilities	1,158,000	991,000
C	Total Non-Current Liabilities	1,197,000	1,026,000	(171,000)	(171,000)
Total Liabilities	2,211,000	2,092,000
Total Liabilities	1,431,000	1,303,000	(128,000)	(128,000)
Owners Equity
Owners Equity	C	Common Stock @ par = $0.01	100	110	10	10
C	Common Stock @ par = $0.01	100	225	125	125	50,000	C	Additional Paid-in Capital	700,000	805,000	105,000	105,000
C	Additional Paid-in Capital	99,900	224,775	124,875	124,875	(12,000)	C	Retained Earnings	400,000	1,056,000	656,000	656,000
D	Treasury Stock [	dr	. acct.]	65,000	27,000	(38,000)	38,000	38,000	Total Owners' Equity	1,100,100	1,861,110
Part of RE	Dividends paid	[before closing entries]	dr	.Acct.	0	23,000	23,000	(23,000)
After	Retained Earnings	118,000	357,000	239,000	239,000	Before	Total Liabilities and Owners Equity	3,311,100	3,953,110
closing JE	Total Owners' Equity	153,000	532,000	349,000	379,000	Dividends
acct.
Total Liabilities and Owners Equity	1,584,000	1,835,000	221,000	251,000	closed @ YE	0	0
0	0	Note: in this example we have Intangibles - which is also a non-cash charge to income
like depreciation - so we add that back to net income just like deprecation:
Note: in this example we have Intngibles - which is also a non-cash charge to income
like depreciation - so we add that back to net income just like deprecation:
Class Company, Inc.	Statement of Retained Earnings
Statement of Income	Beginning RE	400,000
Class Company, Inc.	Period Ending 12/31/2xx2	Net Income	656,000
Statement of Income	$s	$s	Dividends	0
Period Ending 12/31/2xx2	Revenue	7,000,000	100.0%	Ending RE	1,056,000
$s	$s
Revenue	3,600,000	100.0%	Statement of Retained Earnings	Cost of Goods Sold	4,500,000	64.3%
Beginning RE	118,000
Cost of Goods Sold	2,113,000	58.7%	Net Income	239,000	Gross Profit	2,500,000	35.7%
Dividends	(23,000)
Gross Profit	1,487,000	41.3%	Ending RE	334,000	Operating Expenses:	1,500,000	21.4%
Operating Income	1,000,000	14.3%
Operating Expenses:	End RE Before Div. closing JE	357,000
Wage Expense	721,000	20.0%	Dividends	(23,000)	Other Income/Gain	6,000	0.1%
Advertising & Marketing Expense	78,000	2.2%	End RE after Close JE	334,000
Vehicle Expenses	22,000	0.6%	Provision for Income Taxes	505,000	7.2%
Insurance and Other	48,000	1.3%
Depreciation	125,000	3.5%	Operating Income	1,000,000	14.3%
Write-off of Goodwill	25,000	0.7%	$24,000	COST	37000	NBV
Total Operating Expenses	1,019,000	28.3%	$12,000	AD	Other Income	6,000	0.1%	Gain =	43000	sold
$12,000	NBV	Taxes	350,000	5.0%	6000	Gain
Operating Income	468,000	13.0%	$14,000	Sold for	85000	Cost
$2,000	Gain on IS	Net Income	656,000	9.4%	48000	AD
Other Income	(		2,000	0.1%	data from beginning	belongs in
Investing	Class Company, Inc.
Income Before Taxes	470,000	13.1%	Statement of Cash Flows for Period Ending 12/31/2012
$s
Provision for Income Taxes	231,000	6.4%	Cash Flows From Operating Activities:	Amrtzn
Net Income	656,000	∆	C - AD	Beg	$ 500,000
Net Income	239,000	6.6%	Plus: Depreciation	208,000	$ 160,000	$ 48,000	Added	$ 95,000
Plus: Amortization Expense	115,000	$ 20,000	$ 95,000	End	$ (480,000)
Changes in Current Assets and Liabilities	∆	Purchase [data]	Amrtzn	$ 115,000
(Increase) Accounts Receivable	(52,900)
Decrease Prepaid Expenses	4,000
Class Company, Inc.	Decrease Other Current Assets	15,000
Statement of Cash Flows for Period Ending 12/31/2xx2	Increase Accounts Payable	40,000
Increase Accrued Expenses	(10,000)
$s	(Decrease) Other Current Liabilities	(12,000)
Cash Flows From Operating Activities:	Other Changes
Net Income	239,000	AD sold	Less: Gain om Sale of PPE	(6,000)	Remove Gain or Loss-Sales of LT Assets
Plus: Depreciation Expense	125,000	113,000	12,000	125,000	Increase in Deferred Taxes	16,000	deferred tax Non-current are Operating
Plus: Amortization Expense	25,000	Change	Expense	Decrease in Non-current Liabilities	2,000	Given: Financing unless otherwise indicated
Less: Gain on Sale of PPE	(2,000)	14000	24,000	Cost
Changes in Current Assets and Liabilities	(12,000)	AD	Total Change in Cash from Operating Activities	975,100
(Increase) Accounts Receivable	(63,000)	12,000	2,000
Decrease Prepaid Expenses	8,000	Gain	Cash From Investing Activities
Increase Other Current Assets	4,000	Sale of PPE	43,000	from data set
Increase Accounts Payable	10,000	Capital Expenditures: PPE	(125,000)	(40,000)	(85,000)
Increase Accrued Expenses	13,000	Purchase of Intangibles	(95,000)	∆	cost sold
(Decrease) Other Current Liabilities	(12,000)	Other Non-Current assets	4,000
Total Cash Flows from Investing Activities	(173,000)
Other Changes
Increase in Deferred Taxes	16,000	Deferrd incom taxes always Operating	Cash Flows from Financing Activities	Dividends would be here as cash down
Decrease in OtherNon-current Liabilities	(2,000)	a given acct. detail not avail to student	Sale of Stock:Increase in Invested Capital	105,010
Total Change in Cash from Operating Activities	361,000	New Debt	470,000	Current	Non-current	net C & NC
Repayment of Debt	(625,000)	(470,000)	30,000	(185,000)	(155,000)
Cash From Investing Activities	ChangeforPPE	Sold Cost	Total Cash Flows from Financing Activities	(49,990)	New Debt (-)
Capital Expenditures	(197,000)	(173,000)	(24,000)	PPE
Other Non-current Assets	1,000	Net Change in Cash Position	752,110	0	Check
Proceeds from Sale of PPE	14,000	Sold PPE	Opening Cash Balance	200,000
Total Cash Flows from Investing Activities	(182,000)	Ending Cash Balance	952,110
(600,000)
Cash Flows from Financing Activities	447,000
Repayment of Debt	(600,000)	(153,000)	Debt
Additional borrowing	447,000	31,000	63,000	current
Sale of Common stockStock	125,000	1,100,000	915,000	non current
Purchase of treasury stock	(12,000)	1,131,000	978,000	(153,000)
Use of treasury stock	50,000	down
Dividends paid	(23,000)
Total Cash Flows from Financing Activities	(13,000)
Net Change in Cash Position	166,000
Opening Cash Balance	150,000
Ending Cash Balance	316,000	0
Definition of	1 of 2
Cash Flow
This definition of cash flow provides a more accurate representation
the funds the company has available to repay its debt and
cash needs.
Cash flow from operations
= Net income:
=+ or - Non-cash Expenses (depreciation and amortization)
=+ or - Nonrecurring income and expenses (Extraordinary or discontinued Ops)
=+ or - Gain/loss on sales of fixed assets/LT intangibles - Other income/Expense
+/- Changes in operating accounts
(aka working capital accounts)
include:
• Accounts receivable	Current Assets and Current liabilities for the most part
• Inventory
• Prepaid assets
• Other short-term assets
• Accounts payable
• Accrued liabilities
• Other short-term liabilities
Notice that this list includes any asset or liability classified as short-term
or current on the balance sh	eet	except	:
• Cash and cash equivalents	we are measuring cash changes
• Short-term investments	that's a cash equivalent
• Notes payable	a note payable though short term is a form of debt, i.e., Financing
• Current Portion Long Term Debt	This is short term because it’s the part of the long term debt
due within 12 months but it's still debt to outside party
not a supplier
Notice that this section of the balance sheet that includes long term
assets or liabilities that relate to the Income Statement such as
LT term deferred tax assets or liabilities
Cash Flow from Investing Activities:
• Uses of cash to acquire assets, such as capital
expenditures, investments and acquisitions
• Funds raised when any of these types of assets are	sold	are
shown in this section as sources of cash
Cash Flow from Financing Activities:
Shows increases or decreases in all sources of external
financing, such as short-term bank borrowings, commercial
paper, long-term bank debt, other long-term debt and
subordinated debt	Bank & third party borrowings
Also includes equity transactions, such as cash generated by
stock issues or other capital injections, and cash used to
repurchase stock or to pay dividends
More invested capital less payments to owners
Debit	é	= Cash	ê

&P of &N---&D,&T---&F,&A---ACC220---HCT

Examine operating or financing

Run the business

External sources s

Internal Actions

C-14 Problems

Ex 14
Transaction	Operating	Investing	Financing	Source	Use
a.	Short-term investment securities were purchased	X	X
b.	Equipment was purchased	X	X
c.	Accounts payable increased	X	X
d.	Deferred taxes decreased	X	X
e.	Long-term bonds were issued	X	X
f.	Common stock was sold	X	X
g.	A cash dividend was declared and paid	X	X
h.	Interest was paid to long-term creditors	X	X
i.	A long-term mortgage was entirely paid off	X	X
j.	Inventories decreased	X	X
k.	The company recorded net income of $1 million for the year	X	X
l.	Depreciation charges totaled $200,000 for the year	X	X
m.	Accounts receivable increased	X	X

Ch.14 CF scan

ClassCo sells machine AARP 657 for	$ 215,000	sold for A/R
Realizes a gain on the IS of:	$ 42,000
Cost basis	$ 446,000
Accum. Depreciation [AD]	$ 273,000
Book Value	$ 173,000
Sell price - BV	$ 42,000
Journal entry recorded	DR	CR
Accum. Depreciation [AD]	$ 273,000	AD goes to -0-
Cost basis	$ 446,000	Cost goes to -0-
Accts. Receivable	$ 215,000	record A/R for sale
Gain on the Sale	$ 42,000
For Cash Flow:
Deduct gain from Operating	$ (42,000)
Record Sale in Investing	$ 215,000
Add Cost of asset sold for Investing	$ (446,000)	=∆ BS change - amt of cost sold for Purchase of Fixed assets/PPE
Add AD sold to ∆ AD on BS for Deprec. Exp.	$ 273,000	=	∆	AD from BS + AD sold for Deprec. Expense
Sum	0.00
No netting:	Portion of Balance Sheet
Current Portion of Long Term Debt	260,000	290,000	30,000	30,000
Accounts Payable	720,000	760,000	40,000	40,000
Accrued Expenses	50,000	40,000	(10,000)	(10,000)
Other Current Liabilities	23,000	11,000	(12,000)	(12,000)
Total Current Liabilities	1,053,000	1,101,000
Non-Current Liabilities
Long Term Debt	1,100,000	915,000	(185,000)	(185,000)
Current Portion	Long
Financing: Debt	Long Term Debt	Term Debt	Combined
$ 30,000	(185,000)	$ (155,000)
Example A: Acquired New Debt	$200,000
SO, if added	$200,000	AND Debt decreased	($155,000)
Then you paid	($355,000)
Shown both in Financing section of Cash Flow
Acquired new debt	$200,000
AND	Repayment of Debt	($355,000)
Example A: Paid existing Debt	$260,000
SO, if paid	$260,000	AND Debt decreased	($155,000)
Then you borrowed	$105,000
Shown both in Financing section of Cash Flow
Repayment of Debt	$260,000
AND	Acquired new debt	$105,000

ACC220---&P of &N---&D, &T,&F, &A---HCT

Dividends are Financing

Ch.15 Def

Ch. 15 Ratios

Ratio

Method of computation

Measure of

Significance

Better

Operating Profit [Income] Margin

Operating Profit/Net Sales

Risk

Measures profit generated after consideration of operating expenses

Net Profit [Income] Margin

Net Profit/Net Sales

Risk

Measures profit generated after consideration of all expenses and revenues

Gross Profit Margin

Gross Profit /Net Sales

Risk

Measures profit generated after consideration of cost of products sold

Working Capital

Current assets - current liabilities

Liquidity

Measures ability to meet current obligations from current assets

Current Ratio

Current Assets/Current Liabilities

Liquidity

Measures short term liquidity, the ability of firm to meet needs for cash as they arise

Quick or Acid Test

Current Assets – Inventory/Current Liabilities

Liquidity

Measures short term liquidity more rigorously than the Current Ratio by eliminating inventory (usually the least liquid asset)

Accounts Receivable Turnover

Net Sales /Avge,

Accounts Receivable

Asset utilization

Indicates how many times receivables are collected during a year on average

Average Collection Period

Avge. Receivable/

Net Sales/365 OR 365/AR turnover

Asset utilization

Indicates days required to convert receivables into cash

Inventory Turnover

Cost of Good Sold/Avge.Inventory

Asset utilization

Measures efficiency of the firm in managing and selling inventory

Days of Inventory

365/Days of Inventory

Asset utilization

Measures efficiency of the firm in managing and selling inventory

Total Asset Turnover

Net Sales/

Total average Assets

Asset utilization

Measures efficiency of the firm in managing all assets

Earnings Per Common Share

Net Earnings/Average Common Shares Outstanding

Market Price

Shows return to common stock holder for each share owned

Times Interest Earned

Operating Profit/

Interest Expense

Risk

Measures how many times interest expense is covered by operating earnings

Return on Equity

Net Earnings/Avge.Stockholder’s Equity

Profitability

Measures rate of return on stockholders (owners) investment

Price to Earnings

Market Price of Common Stock/Earnings Per Share

Market Price

Expresses multiple that the stock market places on firm’s earnings

Dividend Payout

Dividends Per Share/Earnings Per Share

Market Price

Shows percentage of earnings paid to shareholders

Dividend Yield

Dividends Per Share/Market Price of Common Stock

Market Price

Shows rate earned by shareholders from dividends relative to current price of stock

Return on Assets aka Return on Investment

Net Earnings/Average Total Assets

Profitability Asset Utilization

Measures overall efficiency of firm in managing assets and generating profits

Return on Common Equity

Net Earnings-Preferred dividends/average common equity

Profitability

Measures rate of return on stockholders (owners) investment

Book Value per Share

Ending Common equity /Ending common shares

Financial Leverage

Financial leverage results from the

difference

between the

rate of return the company earns on investments

in its own assets and the

rate

of return that the

company must pay its creditors

Measures efficient use of debt and use of assets

Debt To Equity

Total Liabilities/

Stockholder’s Equity

Risk

Measures debt relative to equity base

Debt Ratio

Total Liabilities/

Total Assets

Risk

Shows proportion of all assets that are financed with debt

Cash Flow Liquidity

Cash + Marketable Securities +

Operating Cash Flows/

Current Liabilities

Liquidity

Measure short term liquidity b considering as cash resources (numerator) cash plus cash equivalents plus cash flow from operating activities

Cash Flow Margin

Cash Flow from Operating Activities/Net Sales

Risk

Measures the ability of the firm to generate cash from sales

Cash Return on Assets

Cash Flow from Operating Activities/Average Total Assets

Asset Utilization

Measures the return on assets on a cash basis

Fixed Asset Turnover

Net Sales/Average

Net Property, Plant and Equipment

Asset utilization

Measures efficiency of the firm in managing fixed assets

Fixed Charge Coverage

Operating Profit + Lease

Payments/

Interest Expense + Lease Payments

Risk

Measures coverage capability more broadly than times interest earned by including lease payments as fixed expenses

Long Term Debt to Total Capitalization

Long Term Debt/

Long Term Debt + Stockholder’s Equity

Risk

Measures extent to which long term debt is used for permanent financing

Ch. 15 Ratio Analysis-Financial Statement Analysis

Vertical

Horizontal

Trend

∆ from a base year

Period to Period

∆ 2xx1 from 2xx0

Total

Revenue

Either % or Amount or

Assets

[or Sales

Both

[Assets]

or Net Rev.]

∆ 2xx2from 2xx1

∆ 2xx3 from 2xx2

100%

∆ 2xx4 from 2xx3

∆ 2xx5 from 2xx5

∆ 2xx1 from 2xx0

∆ 2xx2 from 2xx0

∆ 2xx3 from 2xx0

∆ 2xx4 from 2xx0

∆ 2xx5 from 2xx0

Use student Ch.15 File

Ch. 15 H and V

Cablevision	Comcast	Cablevision	Comcast	Chapter 15
12/31/2xx5	12/31/2xx5	12/31/2xx5	12/31/2xx5
Sales	6701	55842	100.0%	100.0%
Cost Of Goods	2969	37485	44.3%	67.1%
Gross Profit	3732	18357	55.7%	32.9%
Selling & Adminstrative & Depr. & Amort Expenses	2504	7636	37.4%	13.7%	Vertical
Income After Depreciation & Amortization [Oper.Income]	1229	10721	18.3%	19.2%	Analysis
Non-Operating Income	-59	-9	-0.9%	-0.0%
Interest Expense	747	2505	11.1%	4.5%
Pretax Income	423	8207	6.3%	14.7%
Income Taxes	184	3050	2.8%	5.5%
Minority Interest	0	997	0.0%	1.8%
Income From Cont. Operations	239	5157	3.6%	9.2%
Extras & Discontinued Operations	54	0	0.8%	0.0%
Net Income	292	4160	4.4%	7.4%
Depreciation Footnote
Income Before Depreciation & Amortization	2290	25144	34.2%	45.0%
Depreciation & Amortization (Cash Flow)	1062	14423	15.8%	25.8%
Income After Depreciation & Amortization	1229	10721	18.3%	19.2%
Earnings Per Share Data
Average Shares	285	2,778	4.3%	5.0%
Diluted EPS Before Non-Recurring Items	$ 1.03	$ 1.58
Diluted Net EPS	$ 1.02	$ 1.50
Cablevision	Comcast	Cablevision	Comcast	Vertical
12/31/2xx5	12/31/2xx5	12/31/2xx5	12/31/2xx5	Analysis
Assets
Cash & Equivalents	832	1,620	11.7%	1.0%
Receivables	302	4,351	4.2%	2.8%
Other Current Assets	305	2,602	4.3%	1.6%
Total Current Assets	1355	8,573	19.0%	5.4%
Net Property & Equipment	3269	27,559	45.8%	17.5%
Investments & Advances	318	9,854	4.5%	6.2%
Other Non-Current Assets	3	0	0.0%	0.0%
Deferred Charges	134	0	1.9%	0.0%
Intangibles	1992	104,415	27.9%	66.2%
Deposits & Other Assets	72	7,417	1.0%	4.7%
Total Assets	7143	157,818	100.0%	100.0%
0.0%	0.0%
Liabilities & Shareholder's Equity	0.0%	0.0%
Notes Payable	18	0	0.2%	0.0%
Accounts Payable	488	5,705	6.8%	3.6%
Current Portion Long-Term Debt	339	1,367	4.7%	0.9%
Current Portion Capital Leases	9	0	0.1%	0.0%
Accrued Expenses	604	5,379	8.5%	3.4%
Other Current Liabilities	137	790	1.9%	0.5%
Total Current Liabilities	1595	13,241	22.3%	8.4%
Mortgages	0	0	0.0%	0.0%
Deferred Taxes/Income	91	29,932	1.3%	19.0%
Long-Term Debt	10759	37,942	150.6%	24.0%
Non-Current Capital Leases	34	0	0.5%	0.0%
Other Non-Current Liabilities	224	13,034	3.1%	8.3%	Vertical
Minority Interest (Liabilities)	14	16,014	0.2%	10.1%	Analysis
Total Liabilities	12717	110,163	178.0%	69.8%
Shareholder's Equity
Common Stock (Par)	3	32	0.0%	0.0%
Capital Surplus	1051	40,940	14.7%	25.9%
Retained Earnings	-5245	13,971	-73.4%	8.9%
Other Equity	-20	229	-0.3%	0.1%
Treasury Stock	1364	7,517	19.1%	4.8%
Total Shareholder's Equity	-5574	47,655	-78.0%	30.2%
Total Liabilities & Shareholder's Equity	7143	157,818	100.0%	100.0%
Total Common Equity	-5574	47,655	-78.0%	30.2%
Shares Outstanding	279	2,705.90	3.9%	1.7%
Book Value Per Share	$ (19.95)	$ 17.61	-0.3%	0.0%
Five Years	Horizontal
Cablevision	December 31	Analysis	08 - 07	2007
2xx5	2xx4	2xx3	2xx2	2xx1	2xx5	2xx4	2xx3	2xx2	2xx2	Base	$	Δ
Sales	6,701	7,231	7,773	7,230	6,484	-7.3%	-7.0%	7.5%	11.5%	746	6,484	11.5%
Cost Of Goods	2,969	3,008	3,369	3,244	2,891	-1.3%	-10.7%	3.8%	12.2%	353	2,891	12.2%
Gross Profit	3,732	4,223	4,404	3,986	3,593	-11.6%	-4.1%	10.5%	10.9%	393	3,593	10.9%
Selling & Adminstrative & Depr. & Amort Expenses	2,504	2,694	2,989	3,296	2,677	-7.1%	-9.8%	-9.3%	23.1%	619	2,677	23.1%
Income After Depreciation & Amortization [Oper.Income]	1,229	1,529	1,415	690	916	-19.6%	8.0%	105.2%	-24.7%	(226)	916	-24.7%
Non-Operating Income	(59)	(151)	(141)	(202)	124	-60.8%	6.8%	-30.2%	-262.4%	(327)	124	-262.4%
Interest Expense	747	787	753	797	806	-5.1%	4.5%	-5.5%	-1.2%	(9)	806	-1.2%
Pretax Income	423	591	521	(309)	234	-28.4%	13.5%	-268.4%	-232.3%	(543)	234	-232.3%
Income Taxes	184	226	236	(83)	135	-18.2%	-4.3%	-385.1%	-161.4%
Minority Interest	0	1	(0)	0	0	-34.4%	-337.0%	ERROR:#DIV/0!	ERROR:#DIV/0!
Income From Cont. Operations	239	366	285	(227)	99	-34.7%	28.2%	-225.9%	-328.5%
Extras & Discontinued Operations	54	(4)	(0)	(1)	195	-1401.5%	41100.0%	-98.9%	-100.5%
Net Income	292	361	286	(228)	294	-19.1%	26.4%	-225.5%	-177.4%
ERROR:#DIV/0!	ERROR:#DIV/0!	ERROR:#DIV/0!	ERROR:#DIV/0!
Depreciation Footnote	ERROR:#DIV/0!	ERROR:#DIV/0!	ERROR:#DIV/0!	ERROR:#DIV/0!
Income Before Depreciation & Amortization	2,290	2,812	2,771	2,442	2,259	-18.6%	1.5%	13.5%	8.1%
Depreciation & Amortization (Cash Flow)	1,062	1,283	1,355	1,752	1,344	-17.3%	-5.3%	-22.6%	30.4%
Income After Depreciation & Amortization	1,229	1,529	1,415	690	916	-19.6%	8.0%	105.2%	-24.7%
ERROR:#DIV/0!	ERROR:#DIV/0!	ERROR:#DIV/0!	ERROR:#DIV/0!
Earnings Per Share Data	ERROR:#DIV/0!	ERROR:#DIV/0!	ERROR:#DIV/0!	ERROR:#DIV/0!
Average Shares	285	302	298	290	295	-5.6%	1.2%	2.8%	-1.5%
Diluted EPS Before Non-Recurring Items	$ 1.03	$ 1.21	$ 1.13	$ 0.94	$ 0.09	-14.9%	7.1%	20.2%	944.4%
Diluted Net EPS	$ 1.02	$ 1.20	$ 0.96	$ (0.78)	$ 0.74	-15.0%	25.0%	-223.1%	-205.4%
Five Years	Horizontal
Comcast	Analysis
12/31/11	12/31/10	12/31/09	12/31/08	12/31/07	12/31/11	12/31/10	12/31/09	12/31/08
Sales	55,842	37,937	35,756	34,256	30,895	47.2%	6.1%	4.4%	10.9%
Cost Of Goods	37,485	15,250	14,396	13,472	11,175	145.8%	5.9%	6.9%	20.6%
Gross Profit	18,357	22,687	21,360	20,784	19,720	-19.1%	6.2%	2.8%	5.4%
Selling & Adminstrative & Depr. & Amort Expenses	7,636	14,707	14,146	14,052	14,142	-48.1%	4.0%	0.7%	-0.6%
Income After Depreciation & Amortization [Oper.Income]	10,721	7,980	7,214	6,732	5,578	34.3%	10.6%	7.2%	20.7%
Non-Operating Income	-9	280	240	-235	1,060	-103.2%	16.7%	-202.1%	-122.2%
Interest Expense	2,505	2,156	2,348	2,439	2,289	16.2%	-8.2%	-3.7%	6.6%
Pretax Income	8,207	6,104	5,106	4,058	4,349	34.5%	19.5%	25.8%	-6.7%
Income Taxes	3,050	2,436	1,478	1,533	1,800	25.2%	64.8%	-3.6%	-14.8%
Minority Interest	997	33	-10	-22	-38	2921.2%	-430.0%	-54.5%	-42.1%
Investment Gains/Losses	0	0	0	0	0	ERROR:#DIV/0!	ERROR:#DIV/0!	ERROR:#DIV/0!	ERROR:#DIV/0!
Other Income/Charges	0	0	0	0	0	ERROR:#DIV/0!	ERROR:#DIV/0!	ERROR:#DIV/0!	ERROR:#DIV/0!
Income From Cont. Operations	5,157	3,668	3,628	2,547	2,587	40.6%	1.1%	42.4%	-1.5%
Extras & Discontinued Operations	0	0	0	0	0	ERROR:#DIV/0!	ERROR:#DIV/0!	ERROR:#DIV/0!	ERROR:#DIV/0!
Net Income	4,160	3,635	3,638	2,547	2,587	14.4%	-0.1%	42.8%	-1.5%
ERROR:#DIV/0!	ERROR:#DIV/0!	ERROR:#DIV/0!	ERROR:#DIV/0!
Depreciation Footnote	ERROR:#DIV/0!	ERROR:#DIV/0!	ERROR:#DIV/0!	ERROR:#DIV/0!
Income Before Depreciation & Amortization	25,144	14,596	13,714	13,132	11,786	72.3%	6.4%	4.4%	11.4%
Depreciation & Amortization (Cash Flow)	14,423	6,616	6,500	6,400	6,208	118.0%	1.8%	1.6%	3.1%
Income After Depreciation & Amortization	10,721	7,980	7,214	6,732	5,578	34.3%	10.6%	7.2%	20.7%
ERROR:#DIV/0!	ERROR:#DIV/0!	ERROR:#DIV/0!	ERROR:#DIV/0!
Earnings Per Share Data	ERROR:#DIV/0!	ERROR:#DIV/0!	ERROR:#DIV/0!	ERROR:#DIV/0!
Average Shares	2,778	2,820	2,885	2,952	3,129	-1.5%	-2.3%	-2.3%	-5.7%
Diluted EPS Before Non-Recurring Items	$ 1.58	$ 1.31	$ 1.10	$ 0.91	$ 0.74	20.6%	19.1%	20.9%	23.0%
Diluted Net EPS	$ 1.50	$ 1.29	$ 1.26	$ - 0	16.3%	2.4%	ERROR:#DIV/0!	ERROR:#DIV/0!
Cablevision	Horizontal
Analysis -- TREND
Assets	12/31/11	12/31/10	12/31/09	12/31/08	12/31/07	12/31/11	12/31/10	12/31/09	12/31/08
Cash & Equivalents	832	631	498	515	586	31.9%	26.7%	-3.3%	-12.2%
Receivables	302	543	615	605	543	-44.4%	-11.6%	1.7%	11.4%
Other Current Assets	305	574	1,464	1,025	998	-46.8%	-60.8%	42.9%	2.6%
Total Current Assets	1,355	1,640	2,055	1,859	2,128	-17.4%	-20.2%	10.6%	-12.6%
Net Property & Equipment	3,269	3,431	3,316	3,473	3,472	-4.7%	3.5%	-4.5%	0.0%
Investments & Advances	318	236	226	181	668	34.7%	4.4%	24.7%	-72.9%
Other Non-Current Assets	3	23	40	45	41	-85.9%	-42.2%	-11.6%	11.3%
Deferred Charges	134	360	246	253	1,269	-62.9%	46.7%	-2.8%	-80.1%
Intangibles	1,992	2,509	2,779	2,896	1,809	-20.6%	-9.7%	-4.0%	60.1%
Deposits & Other Assets	72	642	664	676	123	-88.7%	-3.4%	-1.8%	451.2%
Total Assets	7,143	8,841	9,326	9,383	9,510	-19.2%	-5.2%	-0.6%	-1.3%
ERROR:#DIV/0!	ERROR:#DIV/0!	ERROR:#DIV/0!	ERROR:#DIV/0!
Liabilities & Shareholder's Equity	ERROR:#DIV/0!	ERROR:#DIV/0!	ERROR:#DIV/0!	ERROR:#DIV/0!
Notes Payable	18	0	0	6	830	ERROR:#DIV/0!	ERROR:#DIV/0!	-100.0%	-99.2%
Accounts Payable	488	508	401	386	370	-3.9%	26.7%	4.0%	4.3%
Current Portion Long-Term Debt	339	695	531	693	0	-51.2%	30.7%	-23.3%	ERROR:#DIV/0!
Current Portion Capital Leases	9	6	6	5	5	50.3%	6.3%	8.1%	-0.7%
Accrued Expenses	604	718	801	894	801	-15.9%	-10.3%	-10.4%	11.6%
Other Current Liabilities	137	235	331	313	312	-41.7%	-29.0%	5.8%	0.3%
Total Current Liabilities	1,595	2,162	2,070	2,297	2,318	-26.2%	4.4%	-9.9%	-0.9%
Mortgages	0	0	0	0	0	ERROR:#DIV/0!	ERROR:#DIV/0!	ERROR:#DIV/0!	ERROR:#DIV/0!
Deferred Taxes/Income	91	11	556	174	582	702.8%	-98.0%	219.1%	-70.1%
Long-Term Debt	10,759	12,081	10,789	11,229	9,225	-10.9%	12.0%	-3.9%	21.7%
Non-Current Capital Leases	34	45	51	57	60	-26.0%	-10.7%	-10.2%	-5.9%
Other Non-Current Liabilities	224	821	1,003	980	756	-72.7%	-18.1%	2.3%	29.7%
Minority Interest (Liabilities)	14	15	12	8	1	-6.3%	20.7%	56.8%	557.6%
Total Liabilities	12,717	15,136	14,481	14,745	12,942	-16.0%	4.5%	-1.8%	13.9%
Shareholder's Equity
Common Stock (Par)	3	3	3	3	0	0.6%	1.5%	1.9%	2827.3%
Capital Surplus	1,051	6	90	137	183	16176.0%	-92.8%	-34.5%	-25.0%
Retained Earnings	(5,245)	(5,495)	(4,750)	(5,034)	(3,618)	-4.5%	15.7%	-5.6%	39.1%
Other Equity	(20)	(22)	(49)	(35)	3	-10.1%	-55.7%	40.6%	-1350.0%
Treasury Stock	1,364	789	450	433	0	72.9%	75.4%	3.7%
Total Shareholder's Equity	(5,574)	(6,295)	(5,155)	(5,362)	(3,432)	-11.5%	22.1%	-3.9%	56.2%
Total Liabilities & Shareholder's Equity	7,143	8,841	9,326	9,383	9,510	-19.2%	-5.2%	-0.6%	-1.3%
Total Common Equity	(5,574)	(6,295)	(5,155)	(5,362)	(3,432)	-11.5%	22.1%	-3.9%	56.2%
Shares Outstanding	279	300	302	297	294	-6.9%	-0.6%	1.6%	1.0%
Book Value Per Share	$ (19.95)	$ (20.98)	$ (17.09)	$ (18.05)	$ (11.67)	-4.9%	22.8%	-5.3%	54.7%
Comcast	Horizontal
Analysis -- Trend
Assets	12/31/11	12/31/10	12/31/09	12/31/08	12/31/07	12/31/11	12/31/10	12/31/09	12/31/08
Cash & Equivalents	1,620	6,065	721	1,254	1,061	-73.3%	741.2%	-42.5%	18.2%
Receivables	4,351	1,855	1,711	1,626	1,645	134.6%	8.4%	5.2%	-1.2%
Other Current Assets	2,602	1,140	1,031	1,128	961	128.2%	10.6%	-8.6%	17.4%
Total Current Assets	8,573	8,886	3,223	3,716	3,667	-3.5%	175.7%	-13.3%	1.3%
Net Property & Equipment	27,559	23,515	23,855	24,444	23,624	17.2%	-1.4%	-2.4%	3.5%
Investments & Advances	9,854	6,670	5,947	4,783	7,963	47.7%	12.2%	24.3%	-39.9%
Intangibles	104,415	78,002	78,490	78,896	77,521	33.9%	-0.6%	-0.5%	1.8%
Deposits & Other Assets	7,417	1,461	1,218	1,178	642	407.7%	20.0%	3.4%	83.5%
Total Assets	157,818	118,534	112,733	113,017	113,417	33.1%	5.1%	-0.3%	-0.4%
Liabilities & Shareholder's Equity
Accounts Payable	5,705	3,291	3,094	3,393	3,336	73.4%	6.4%	-8.8%	1.7%
Current Portion Long-Term Debt	1,367	1,800	1,156	2,278	1,495	-24.1%	55.7%	-49.3%	52.4%
Accrued Expenses	5,379	3,143	2,999	624	494	71.1%	4.8%	380.6%	26.3%
Other Current Liabilities	790	0	0	2,644	2,627	-100.0%	0.6%
Total Current Liabilities	13,241	8,234	7,249	8,939	7,952	60.8%	13.6%	-18.9%	12.4%
Deferred Taxes/Income	29,932	28,246	27,800	26,982	26,880	6.0%	1.6%	3.0%	0.4%
Long-Term Debt	37,942	29,615	27,940	30,178	29,828	28.1%	6.0%	-7.4%	1.2%
Other Non-Current Liabilities	13,034	7,862	6,767	6,171	7,167	65.8%	16.2%	9.7%	-13.9%
Minority Interest (Liabilities)	16,014	143	166	297	250	11098.6%	-13.9%	-44.1%	18.8%
Total Liabilities	110,163	74,100	69,922	72,567	72,077	48.7%	6.0%	-3.6%	0.7%
Shareholder's Equity
Common Stock (Par)	32	32	32	33	34	0.0%	0.0%	-3.0%	-2.9%
Capital Surplus	40,940	39,780	40,247	40,620	41,688	2.9%	-1.2%	-0.9%	-2.6%
Retained Earnings	13,971	12,158	10,005	7,427	7,191	14.9%	21.5%	34.7%	3.3%
Other Equity	229	-19	44	-113	-56	-1305.3%	-143.2%	-138.9%	101.8%
Treasury Stock	7,517	7,517	7,517	7,517	7,517	0.0%	0.0%	0.0%	0.0%
Total Shareholder's Equity	47,655	44,434	42,811	40,450	41,340	7.2%	3.8%	5.8%	-2.2%
Total Liabilities & Shareholder's Equity	157,818	118,534	112,733	113,017	113,417	33.1%	5.1%	-0.3%	-0.4%
Total Common Equity	47,655	44,434	42,811	40,450	41,340	7.2%	3.8%	5.8%	-2.2%
Shares Outstanding	2,705.90	2,776.50	2,837.50	2,880.60	3,011	-2.5%	-2.1%	-1.5%	-4.3%
Book Value Per Share	$ 17.61	$ 16.00	$ 15.09	$ 14.04	$ 13.73	10.1%	6.0%	7.5%	2.3%

HCT---ACC220---&P of &N---&D,&T---&F,&A

Use student Ch.15 File

Ch. 15 Ratios

Ratio Definitions [1]	Ch. 15 Financial Ratios	FORD MOTOR COMPANY AND SUBSIDIARIES
these ar ratios for HW	CONSOLIDATED STATEMENT OF OPERATIONS
PE = Period End	For the Years Ended	December 31, 2011	,	2010	, and	2009
(in millions, except per share amounts)
1	Current ratio
PE Current assets / Current liabilities
2011	2010	2009
2	Quick Ratio
PE Cash + Marketable securities + Short term investment + A/R / Current liabilities	Revenues
Total revenues	136,264	128,954	116,283
3	Average collection period [days]
365 X [ 2 pt average A/R / Net credit sales]	Costs and expenses
CoGS	113,345	104,451	98,866
OR 365 / A/R turnover
Selling, administrative and other expenses	11,578	11,909	13,029
5	A/R turnover [ assume all sales are credit sales]
Net Credit Sales (or Revenue) / 2 pt. average A/R	Interest expense	4,431	6,152	6,790
Note: if unknown assume all line sales, revenue are credit
6	Inventory turnover	Financial Services provision for credit and insurance losses	-33	-216	1,030
Net Credit Sales (or Revenue) / 2 pt. average A/R	Total costs and expenses	129,321	122,296	119,715
7	Inventory days
365 / Inventory turnover	Automotive interest income and other non-operating income/(expense),	825	(362	5,284
8	Fixed asset turnover	Financial Services other income/(loss), net (Note 19)	413	315	552
Net sales or revenue / Net Fxd. Assets	Equity in net income/(loss) of affiliated companies	500	538	195
9	Debt ratio	Income/(Loss) before income taxes	8,681	7,149	2,599
Total assets / Total liabilities
Provision for/(Benefit from) income taxes (Note 22)	-11541	592	-113
10	Debt to equity
Total liabilities / Total equity	Income/(Loss) from continuing operations	20,222	6,557	2,712
11	Times interest earned	Ratio Definitions [2]	Income/(Loss) from discontinued operations	—	—	5
Net income before interest & taxes /	[Interest expense - interest income]
this = net interest expense	Net income/(loss)	20,222	6,557	2,717
12	Gross Profit %
[Revenue - CoGS] / Net sales, revenue	Less: Income/(Loss) attributable to noncontrolling interests	9	(4	—
13	Operating income %	Net income/(loss) attributable to Ford Motor Company	$	$	$
Operating income / Sales or revenue
14	Net income %	NET INCOME/(LOSS) ATTRIBUTABLE TO FORD MOTOR COMPANY
Net income [bottom line] / net sales or revenue	Income/(Loss) from continuing operations	$	$	$
15	Return on assets [ROI]	Net income/(loss) attributable to Ford Motor Company	$	$	$
Net income / 2 pt. average total assets
Less: Income/(Loss) attributable to noncontrolling interests	9	-4
16	PE ratio
Net income per share / stock price per share	Net income/(loss) attributable to Ford Motor Company	20,213	6,561	2,717
17	Earnings per share [undiluted]
Stock price per share = Net income for s	NET INCOME/(LOSS) ATTRIBUTABLE TO FORD MOTOR COMPANY
common stock / average fully dilutes common shares	Income/(Loss) from continuing operations	20,213	6,561	2,712
18	RO Equity
Net income / 2 pt average equity	Income/(Loss) from discontinued operations	5
19	Income statement & BS Vertical analysis	Net income/(loss) attributable to Ford Motor Company	20,213	6,561	2,717
For IS Sales OR revenue = 100% divide all by sales or revenue
For BS Assets = 100%, divide all by Assets
20	IS Horizontal analysis
Difference from prior [older] period / prior period
21	BV per common share
Equity / Average # fully diluted common shares
22	Working capital
Current assets - Current liabilities
TimeWarner [TWX]	VERTICAL ANALYSIS: COMMON	CBS [CBS]
WITHOUT NON-RECURRING ITEMS
PERIOD ENDING	9/30/20x1	%	%	9/30/20x1	PERIOD ENDING
Cash And Cash Equivalents	4,355,000	3.2%	2.0%	553,100	Cash And Cash Equivalents
Net Receivables	6,653,000	4.9%	11.4%	3,096,900	Net Receivables
Inventory	2,061,000	1.5%	2.9%	781,500	Inventory
Other Current Assets	1,623,000	1.2%	2.9%	786,300	Other Current Assets
Total Current Assets	14,692,000	10.7%	19.2%	5,217,800	Total Current Assets
Long Term Investments	1,907,000	1.4%	0.0%	0	Long Term Investments
Property Plant and Equipment	23,646,000	17.3%	16.9%	4,583,000	Property Plant and Equipment
Goodwill	42,450,000	31.0%	32.7%	8,897,100	Goodwill
Intangible Assets	52,120,000	38.1%	25.7%	6,980,800	Intangible Assets
Other Assets	1,913,000	1.4%	5.5%	1,495,000	Other Assets
Deferred Long Term Asset Charges	-	-	Deferred Long Term Asset Charges
Total Assets	136,728,000	100.0%	100.0%	27,173,700	Total Assets
Accounts Payable	5,289,000	3.9%	12.5%	3,397,300	Accounts Payable
Short/Current Long Term Debt	125,000	0.1%	0.1%	15,800	Short/Current Long Term Debt
Other Current Liabilities	6,556,000	4.8%	4.6%	1,259,100	Other Current Liabilities
Total Current Liabilities	11,970,000	8.8%	17.2%	4,672,200	Total Current Liabilities
Long Term Debt	37,867,000	27.7%	26.1%	7,084,300	Long Term Debt
Other Liabilities	6,972,000	5.1%	20.9%	5,667,700	Other Liabilities
Deferred Long Term Liability Charges	15,159,000	11.1%	2.1%	573,400	Deferred Long Term Liability Charges
Minority Interest	4,524,000	3.3%	0.0%	2,600	Minority Interest
Total Liabilities	76,492,000	55.9%	66.2%	18,000,200	Total Liabilities
Redeemable Preferred Stock	300,000	0.2%	-	Redeemable Preferred Stock
Common Stock	49,000	0.0%	0.0%	800	Common Stock
Retained Earnings	-86,637,000	-63.4%	-113.1%	-30,734,300	Retained Earnings
Treasury Stock	-25,836,000	-18.9%	-13.6%	-3,693,400	Treasury Stock
Capital Surplus	172,609,000	126.2%	160.6%	43,651,500	Capital Surplus
Other Stockholder Equity	-249,000	-0.2%	-0.2%	-51,100	Other Stockholder Equity
Total Stockholder Equity	59,936,000	43.8%	33.8%	9,173,500	Total Stockholder Equity
Net Tangible Assets	($34,634,000)	-25.3%	-24.7%	($6,704,400)	Net Tangible Assets
PERIOD ENDING	30-Sep-08	30-Sep-08	PERIOD ENDING
Total Revenue	11,706,000	100.0%	100.0%	3,375,700	Total Revenue
Cost of Revenue	6,664,000	56.9%	60.7%	2,050,200	Cost of Revenue
Gross Profit	5,042,000	43.1%	39.3%	1,325,500	Gross Profit
Selling General and Administrative	2,419,000	20.7%	20.2%	680,800	Selling General and Administrative
Others	206,000	1.8%	4.1%	139,700	Others
Total Operating Expenses	2,625,000	22.4%	24.3%	820,500	Total Operating Expenses
Operating Income or Loss	2,417,000	20.6%	15.0%	505,000	Operating Income or Loss
Total Other Income/Expenses Net	104,000	-34,900	Total Other Income/Expenses Net	14,123,100
Earnings Before Interest And Taxes	2,521,000	470,100	Earnings Before Interest And Taxes
Interest Expense	623,000	5.3%	4.0%	134,800	Interest Expense
Income Before Tax	1,898,000	335,300	Income Before Tax
Income Tax Expense	655,000	100,590	Income Tax Expense
Minority Interest [memo]	-96,000	-500	Minority Interest [memo]
Net Income From Continuing Ops	1,243,000	10.6%	7.0%	234,710	Net Income From Continuing Ops
Discontinued Operations	1,000	0.0%	0	Discontinued Operations
Net Income	1,244,000	10.6%	234,710	Net Income
Net Income Applicable To Common Shares	$1,244,000	10.6%	7.0%	$234,710	Net Income Applicable To Common Shares
Horizontal Analysis -- See PPT slides
Horizontal Analysis
Use for Ratios in class	Sample company [1]	Use for Ratios in class	Sample company [2]
FORD MOTOR COMPANY AND SUBSIDIARIES	Simplified
CONSOLIDATED STATEMENT OF OPERATIONS	Class Company, Inc.
For the Years Ended	December 31, 2xx3	,	2xx2	, and	2xx1	[This is #2 data set from Cash Flow]	Balance Sheet as of
(in millions, except per share amounts)	12/31/2xx1	12/31/2xx2
2xx3	2xx2	2xx1	Assets:
Revenues	Current Assets:	$s	$s
Total revenues	136,264	128,954	116,283	Cash	200,000	252,110
Accounts Receivable	385,100	438,000
Costs and expenses	Prepaid Expenses	33,000	29,000
CoGS	113,345	104,451	98,866	Inventory	600,000	700,000
Selling, administrative and other expenses	11,578	11,909	13,029	Other Current Assets	22,000	7,000
Operating Income	11,341	12,594	4,388	Total Current Assets:	1,240,100	1,426,110
Interest expense	4,431	6,152	6,790	Plant Property & Equipment	2,100,000	2,740,000
Cr. Balance	Less: Accum. Depreciation	600,000	760,000
Financial Services provision for credit and insurance losses	(33)	(216)	1,030	Net Plant Property & Equipment	1,500,000	1,980,000
Total costs and expenses	129,321	122,296	119,715
Other Non-Current Assets:
Intangibles	500,000	480,000
Automotive interest income and other non-operating income/(expense),	825	(362	5,284	77,403	Deferred Loan Placement Costs	30,000	30,000
Financial Services other income/(loss), net (Note 19)	413	315	552	373	Other Non-Current assets	41,000	37,000
Equity in net income/(loss) of affiliated companies	500	538	195	207.3	Total Other Non-Current Assets	571,000	547,000
Income/(Loss) before income taxes	8,681	7,149	2,599	Total Assets	3,311,100	3,953,110
Provision for/(Benefit from) income taxes (Note 22)	(11,541)	592	(113)	Liabilities:
Current Portion of Long Term Debt	260,000	290,000
Income/(Loss) from continuing operations	20,222	6,557	2,712	Accounts Payable	720,000	760,000
Accrued Expenses	50,000	40,000
Income/(Loss) from discontinued operations	—	—	5	Other Current Liabilities	23,000	11,000
Total Current Liabilities	1,053,000	1,101,000
Net income/(loss)	20,222	6,557	2,717
all attributable to common	Non-Current Liabilities
Long Term Debt	1,100,000	915,000
Deferred Income Taxes	55,000	71,000
FORD MOTOR COMPANY AND SUBSIDIARIES	Other Non-current Liabilities	3,000	5,000
SECTOR BALANCE SHEET	Total Non-Current Liabilities	1,158,000	991,000	991,000	3,953,110
(in millions)
ASSETS	December 31,	December 31	Total Liabilities	2,211,000	2,092,000
Automotive & Fin initial services	2xx3	2xx2
Cash and cash equivalents	17,148	14,805	Owners Equity
Marketable securities (Note 6)	18,819	20,966	Common Stock @ par = $0.01	100	110
Total cash and marketable securities	35,967	35,771	Cash for cash flow	Additional Paid-in Capital	700,000	756,000
41,656	Dividends [before closing entries]	49,000
Receivables, less allowances of $126 and $228	77,549	77,257	10,384	Retained Earnings	400,000	1,056,000	0.0408333333
Inventories (Note 10)	5,901	5,917	Total Owners' Equity	1,100,100	1,861,110	1,480,605
Deferred income taxes	1,791	359
Net investment in operating leases (Note 8)	1,356	1,282	Total Liabilities and Owners Equity	3,311,100	3,953,110
Other current assets	1,053	610
Current receivable from Financial Services (Note 1)	878	1,700	Ending # of Common Shares	1,057,000	1,200,000	0.0408333333
Total current assets	124,495	122,896	Check	0	0
Equity in net assets of affiliated companies (Note 11)	2,797	2,441	Note: in this example we have Intangibles - which is also a non-cash charge to income
Net property (Note 14)	22,229	23,027	like depreciation - so we add that back to net income just like deprecation:
Deferred income taxes	13,932	2,468
Net intangible assets (Note 15)	100	102
Non-current receivable from Financial Services (Note 1)	32	181	1.76	Class Company, Inc.
Net investment in operating leases (Note 8)	11,482	10,393	Statement of Income
Equity in net assets of affiliated companies (Note 11)	139	128	Period Ending 12/31/2xx2
Other assets	5,154	6,240	$s	$s
Total Non-current assets	55,865	44,980	Revenue [all credit sales]	7,000,000	100.0%
Intersector elimination	(1,112)	(2,083)
Total assets	179,248	165,793	Cost of Goods Sold	4,500,000	64.3%
LIABILITIES	Gross Profit	2,500,000	35.7%
Trade payables	14,990	14,818	24233
Other payables	2,734	1,544	179,248	Operating Expenses:	1,358,000	19.4%
Accrued liabilities and deferred revenue (Note 16)	15,003	17,065	20,222	Operating Income	1,142,000	16.3%
Deferred income taxes	40	392	4,431
Debt payable within one year (Note 18)	1,943	3,930	0.7	Other Income/Gain	0	0.0%
Total current liabilities	32,825	34,516	3101.7
23,324	Provision for Income Taxes	505,000	7.2%
Non-current	13.5%
Long-term debt (Note 18)	98,656	102,140	Operating Income	1,142,000	16.3%
Other liabilities (Note 16)	26,910	23,016
Deferred income taxes	255	344	Interest Expense	142,000
Other liabilities and deferred income	38,558	41,137	Other Income	6,000	0.1%
Payable to Automotive (Note 1)	910	1,881
Total Non-current	165,289	168,518	Income Before Taxes	1,006,000	14.4%
Taxes	350,000	5.0%	34.8%	tax rate 350000 / 1006000
Intersector elimination	(1,112)	(2,083)
Total liabilities	164,177	166,435	Net Income	656,000	9.4%
0	0
EQUITY	Tax rate = 40%
Capital stock (Note 24)	2xx3	2xx2	Class Company, Inc.	0	0
Common Stock, par value $.01 per share (3,745 million shares issued)	37	37	Number of Shares	OI %	16.31%	1
Class B Stock, par value $.01 per share (71 million shares issued)	1	1	3.8 billion	NI %	9.4%	2
Capital in excess of par value of stock	20,905	20,803	GP $	2,500,000	3
Retained earnings/(Accumulated deficit)	12,985	(7,038)	Dividends Ex.only	GP %	35.7%	4
Accumulated other comprehensive income/(loss)	(18,734)	(14,313)	$ 0.25	WC $	325,110	5
Treasury stock	(166)	(163)	Current ratio	1.30	6
Total equity/(deficit) attributable to Ford Motor Company	15,028	(673)	Stock Price/share	Quick Ratio aka Acid test Ratio	0.61	7
Equity/(Deficit) attributable to noncontrolling interests	43	31	$ 9.50	A/R Turns	17.01	8
Total equity/(deficit)	15,071	(642)	Credit Sales per day	19178	9
Total liabilities and equity	179,248	165,793	A/R turnover Days	20.1	10
Inventory turnover	6.9	11
FORD MOTOR COMPANY AND SUBSIDIARIES	2xx3	Days of inventory = average sale period	52.7	12
11341 / 136264	OI %	8.32%	1	Asset turnover	1.93	13
20222 / 136264	NI %	14.8%	2	Acctg. ROA [aka ROI] %	18.1%	14
136264 - 113345	GP $	22,919	3	Return on Total Assets	24.3%	15	Interest AT added
[136264 - 113345 ] / 136264	GP %	16.8%	4	Return on Total Assets	18.1%	16	No interest added
124495 - 32825	WC $	91,670	5	EPS [common share]	$0.58	17	see PPT for Preferred stcok
124495 / 32825	Current ratio	3.79	6	Times interest [expense] only	8.04	18
Quick Ratio aka Acid test Ratio	3.61	7	[124495 - 5901]/32825	ROE %	44.3%	19	average equity
A/R Turns	1.76	8	136264/avge77257,77549	PE Ratio	17.20	20
Credit Sales per day	373	9	Dividend payout ratio	7.0%	21
A/R turnover Days	207.3	10	365 / AR turns	Dividend yield ratio	0.4%	22
Inventory turnover	19.2	11	113345/avge5901,5917	Return common equity	44.3%	23	see PPT for Preferred stcok
Days of inventory = average sale period	19.0	12	365/19.2	BV per share	$1.55	24
Asset turnover	0.79	13	136264/avge179248,165793	$10.00	Market price per share
Acctg. ROA [aka ROI] %	11.7%	14	Averages begin	Debt to equity ratio	1.12	25
20222/avge1792498,165793	Debt to asset ratio	0.53	26
Return on Total Assets [tax @30%]	13.5%	15	Interest AT added
Return on Total Assets	11.7%	16	No interest added
20222/avge(179248,165793
EPS [common share]	$5.32	17	20222/3800[avge]
Times interest [expense] only	2.56	18	11341/4431	Example A
ROE %	280.3%	19	20222/av.15071,[642]	Net Income	$ 1,500,000
PE Ratio	1.79	20	9.50/5.32	Preferred shares	115,000
Dividend payout ratio	4.7%	21	.25/5.32	Dividends per preferred share	$1.20
Dividend yield ratio	2.6%	22	.25/9.50	Paid to preferred	$138,000
Return common equity	280.3%	23	Have only common in this ex.	20,222	Income for Common shares	$1,362,000
BV per share	$3.97	24	15071/3800	7,215	Average # of Common shares	950,000
$10.00	Market price per share Sept'12	EPS per common share	$1.43
Debt to equity ratio	10.9	25	164177/15071
Debt to asset ratio	0.92	26
Example B
Net Income	$ 2,770,000
Preferred shares	1,200,000
Dividends per preferred share	$2.00
Paid to preferred	$2,400,000
Income for Common shares	$370,000
Average # of Common shares	1,300,000
EPS per common share	$0.28

ACC220---HCT---&P of &N---&D,&T---&F,&A

Use student Ch.15 File

Ch.15 FinRatio-Trend

ClassCo	TREND
Year
Item	2xx5	2xx4	2xx3	2xx2	2xx1
Sales	$ 400,000	$ 355,000	$ 320,000	$ 290,000	$ 275,000
Cost of goods sold	285,000	250,000	225,000	198,000	190,000
Gross margin	115,000	105,000	95,000	92,000	85,000
Year
Item	2xx5	2xx4	2xx3	2xx2	2xx1
Sales	145.5%	129.1%	116.4%	105.5%	100.0%
Cost of goods sold	150.0%	131.6%	118.4%	104.2%	100.0%
Gross margin	135.3%	123.5%	111.8%	108.2%	100.0%
See Separate File
1.1267605634

HCT---&P of &N---&D,&T---&F,&A

By analyzing the trends for ClassCO, we can see that cost of goods sold is increasing faster than sales, which is slowing the increase in gross margin.

Sales 2xx5 2xx4 2xx3 2xx2 2xx1 1.4545454545454546 1.290909090909091 1.1636363636363636 1.0545454545454545 1 Cost of goods sold 2xx5 2xx4 2xx3 2xx2 2xx1 1.5 1.3157894736842106 1.1842105263157894 1.0421052631578946 1 Gross margin 2xx5 2xx4 2xx3 2xx2 2xx1 1.3529411764705883 1.2352941176470589 1.1176470588235294 1.0823529411764705 1 Sales 2xx5 2xx4 2xx3 2xx2 2xx1 1.4545454545454546 1.290909090909091 1.1636363636363636 1.0545454545454545 1 Cost of goods sold 2xx5 2xx4 2xx3 2xx2 2xx1 1.5 1.3157894736842106 1.1842105263157894 1.0421052631578946 1 Gross margin 2xx5 2xx4 2xx3 2xx2 2xx1 1.3529411764705883 1.2352941176470589 1.1176470588235294 1.0823529411764705 1

Trend lines shown with option of two forward periods; option to display Y=a+bX formula as well and least squares coefficient

Use student Ch.15 File

Ch.15 HW helper

Ratio Definitions [1]	Ch. 15 Financial Ratios	FORD MOTOR COMPANY AND SUBSIDIARIES
these ar ratios for HW	CONSOLIDATED STATEMENT OF OPERATIONS
PE = Period End	For the Years Ended	December 31, 2011	,	2010	, and	2009
(in millions, except per share amounts)
1	Current ratio
PE Current assets / Current liabilities
2011	2010	2009
2	Quick Ratio
PE Cash + Marketable securities + Short term investment + A/R / Current liabilities	Revenues
Total revenues	136,264	128,954	116,283
3	Average collection period [days]
365 X [ 2 pt average A/R / Net credit sales]	Costs and expenses
CoGS	113,345	104,451	98,866
OR 365 / A/R turnover
Selling, administrative and other expenses	11,578	11,909	13,029
5	A/R turnover [ assume all sales are credit sales]
Net Credit Sales (or Revenue) / 2 pt. average A/R	Interest expense	4,431	6,152	6,790
Note: if unknown assume all line sales, revenue are credit
6	Inventory turnover	Financial Services provision for credit and insurance losses	-33	-216	1,030
Net Credit Sales (or Revenue) / 2 pt. average A/R	Total costs and expenses	129,321	122,296	119,715
7	Inventory days
365 / Inventory turnover	Automotive interest income and other non-operating income/(expense),	825	(362	5,284
8	Fixed asset turnover	Financial Services other income/(loss), net (Note 19)	413	315	552
Net sales or revenue / Net Fxd. Assets	Equity in net income/(loss) of affiliated companies	500	538	195
9	Debt ratio	Income/(Loss) before income taxes	8,681	7,149	2,599
Total assets / Total liabilities
Provision for/(Benefit from) income taxes (Note 22)	-11541	592	-113
10	Debt to equity
Total liabilities / Total equity	Income/(Loss) from continuing operations	20,222	6,557	2,712
11	Times interest earned	Ratio Definitions [2]	Income/(Loss) from discontinued operations	—	—	5
Net income before interest & taxes /	[Interest expense - interest income]
this = net interest expense	Net income/(loss)	20,222	6,557	2,717
12	Gross Profit %
[Revenue - CoGS] / Net sales, revenue	Less: Income/(Loss) attributable to noncontrolling interests	9	(4	—
13	Operating income %	Net income/(loss) attributable to Ford Motor Company	$	$	$
Operating income / Sales or revenue
14	Net income %	NET INCOME/(LOSS) ATTRIBUTABLE TO FORD MOTOR COMPANY
Net income [bottom line] / net sales or revenue	Income/(Loss) from continuing operations	$	$	$
15	Return on assets [ROI]	Net income/(loss) attributable to Ford Motor Company	$	$	$
Net income / 2 pt. average total assets
Less: Income/(Loss) attributable to noncontrolling interests	9	-4
16	PE ratio
Net income per share / stock price per share	Net income/(loss) attributable to Ford Motor Company	20,213	6,561	2,717
17	Earnings per share [undiluted]
Stock price per share = Net income for s	NET INCOME/(LOSS) ATTRIBUTABLE TO FORD MOTOR COMPANY
common stock / average fully dilutes common shares	Income/(Loss) from continuing operations	20,213	6,561	2,712
18	RO Equity
Net income / 2 pt average equity	Income/(Loss) from discontinued operations	5
19	Income statement & BS Vertical analysis	Net income/(loss) attributable to Ford Motor Company	20,213	6,561	2,717
For IS Sales OR revenue = 100% divide all by sales or revenue
For BS Assets = 100%, divide all by Assets
20	IS Horizontal analysis
Difference from prior [older] period / prior period
21	BV per common share
Equity / Average # fully diluted common shares
22	Working capital
Current assets - Current liabilities
TimeWarner [TWX]	VERTICAL ANALYSIS: COMMON	CBS [CBS]
WITHOUT NON-RECURRING ITEMS
PERIOD ENDING	9/30/20x1	%	%	9/30/20x1	PERIOD ENDING
Cash And Cash Equivalents	4,355,000	3.2%	2.0%	553,100	Cash And Cash Equivalents
Net Receivables	6,653,000	4.9%	11.4%	3,096,900	Net Receivables
Inventory	2,061,000	1.5%	2.9%	781,500	Inventory
Other Current Assets	1,623,000	1.2%	2.9%	786,300	Other Current Assets
Total Current Assets	14,692,000	10.7%	19.2%	5,217,800	Total Current Assets
Long Term Investments	1,907,000	1.4%	0.0%	0	Long Term Investments
Property Plant and Equipment	23,646,000	17.3%	16.9%	4,583,000	Property Plant and Equipment
Goodwill	42,450,000	31.0%	32.7%	8,897,100	Goodwill
Intangible Assets	52,120,000	38.1%	25.7%	6,980,800	Intangible Assets
Other Assets	1,913,000	1.4%	5.5%	1,495,000	Other Assets
Deferred Long Term Asset Charges	-	-	Deferred Long Term Asset Charges
Total Assets	136,728,000	100.0%	100.0%	27,173,700	Total Assets
Accounts Payable	5,289,000	3.9%	12.5%	3,397,300	Accounts Payable
Short/Current Long Term Debt	125,000	0.1%	0.1%	15,800	Short/Current Long Term Debt
Other Current Liabilities	6,556,000	4.8%	4.6%	1,259,100	Other Current Liabilities
Total Current Liabilities	11,970,000	8.8%	17.2%	4,672,200	Total Current Liabilities
Long Term Debt	37,867,000	27.7%	26.1%	7,084,300	Long Term Debt
Other Liabilities	6,972,000	5.1%	20.9%	5,667,700	Other Liabilities
Deferred Long Term Liability Charges	15,159,000	11.1%	2.1%	573,400	Deferred Long Term Liability Charges
Minority Interest	4,524,000	3.3%	0.0%	2,600	Minority Interest
Total Liabilities	76,492,000	55.9%	66.2%	18,000,200	Total Liabilities
Redeemable Preferred Stock	300,000	0.2%	-	Redeemable Preferred Stock
Common Stock	49,000	0.0%	0.0%	800	Common Stock
Retained Earnings	-86,637,000	-63.4%	-113.1%	-30,734,300	Retained Earnings
Treasury Stock	-25,836,000	-18.9%	-13.6%	-3,693,400	Treasury Stock
Capital Surplus	172,609,000	126.2%	160.6%	43,651,500	Capital Surplus
Other Stockholder Equity	-249,000	-0.2%	-0.2%	-51,100	Other Stockholder Equity
Total Stockholder Equity	59,936,000	43.8%	33.8%	9,173,500	Total Stockholder Equity
Net Tangible Assets	($34,634,000)	-25.3%	-24.7%	($6,704,400)	Net Tangible Assets
PERIOD ENDING	30-Sep-08	30-Sep-08	PERIOD ENDING
Total Revenue	11,706,000	100.0%	100.0%	3,375,700	Total Revenue
Cost of Revenue	6,664,000	56.9%	60.7%	2,050,200	Cost of Revenue
Gross Profit	5,042,000	43.1%	39.3%	1,325,500	Gross Profit
Selling General and Administrative	2,419,000	20.7%	20.2%	680,800	Selling General and Administrative
Others	206,000	1.8%	4.1%	139,700	Others
Total Operating Expenses	2,625,000	22.4%	24.3%	820,500	Total Operating Expenses
Operating Income or Loss	2,417,000	20.6%	15.0%	505,000	Operating Income or Loss
Total Other Income/Expenses Net	104,000	-34,900	Total Other Income/Expenses Net	14,123,100
Earnings Before Interest And Taxes	2,521,000	470,100	Earnings Before Interest And Taxes
Interest Expense	623,000	5.3%	4.0%	134,800	Interest Expense
Income Before Tax	1,898,000	335,300	Income Before Tax
Income Tax Expense	655,000	100,590	Income Tax Expense
Minority Interest [memo]	-96,000	-500	Minority Interest [memo]
Net Income From Continuing Ops	1,243,000	10.6%	7.0%	234,710	Net Income From Continuing Ops
Discontinued Operations	1,000	0.0%	0	Discontinued Operations
Net Income	1,244,000	10.6%	234,710	Net Income
Net Income Applicable To Common Shares	$1,244,000	10.6%	7.0%	$234,710	Net Income Applicable To Common Shares
Horizontal Analysis -- See PPT slides
Horizontal Analysis
Use for Ratios in class	Sample company Hand-out
FORD MOTOR COMPANY AND SUBSIDIARIES	Simplified
CONSOLIDATED STATEMENT OF OPERATIONS
For the Years Ended	December 31, 2011	,	2010	, and	2009
(in millions, except per share amounts)
2011	2010	2009
Revenues
Total revenues	136,264	128,954	116,283
Costs and expenses	Total revenues
CoGS	113,345	104,451	98,866	-
Selling, administrative and other expenses	11,578	11,909	13,029
Operating Income	11,341	12,594	4,388
Interest expense	4,431	6,152	6,790
Financial Services provision for credit and insurance losses	(33)	(216)	1,030
Total costs and expenses	129,321	122,296	119,715
Automotive interest income and other non-operating income/(expense),	825	(362	5,284
Financial Services other income/(loss), net (Note 19)	413	315	552
Equity in net income/(loss) of affiliated companies	500	538	195
Income/(Loss) before income taxes	8,681	7,149	2,599
20,222
Provision for/(Benefit from) income taxes (Note 22)	(11,541)	592	(113)	40%
4,431
Income/(Loss) from continuing operations	20,222	6,557	2,712	2658.6
22,881
Income/(Loss) from discontinued operations	—	—	5
Net income/(loss)	20,222	6,557	2,717
all atributable to common
FORD MOTOR COMPANY AND SUBSIDIARIES
SECTOR BALANCE SHEET
(in millions)
ASSETS	December 31,	December 31,
Automotive & Fin incial services	2011	2010
Cash and cash equivalents	17,148	14,805
Marketable securities (Note 6)	18,819	20,966
Total cash and marketable securities	35,967	35,771	Cash for cash flow
Receivables, less allowances of $126 and $228	77,549	77,257
Inventories (Note 10)	5,901	5,917
Deferred income taxes	1,791	359
Net investment in operating leases (Note 8)	1,356	1,282
Other current assets	1,053	610
Current receivable from Financial Services (Note 1)	878	1,700
Total current assets	124,495	122,896
Equity in net assets of affiliated companies (Note 11)	2,797	2,441
Net property (Note 14)	22,229	23,027
Deferred income taxes	13,932	2,468
Net intangible assets (Note 15)	100	102
Non-current receivable from Financial Services (Note 1)	32	181
Net investment in operating leases (Note 8)	11,482	10,393
Equity in net assets of affiliated companies (Note 11)	139	128
Other assets	5,154	6,240
Total Non-current assets	55,865	44,980
Intersector elimination	(1,112)	(2,083)
Total assets	179,248	165,793
LIABILITIES
Trade payables	14,990	14,818
Other payables	2,734	1,544
Accrued liabilities and deferred revenue (Note 16)	15,003	17,065
Deferred income taxes	40	392
Debt payable within one year (Note 18)	1,943	3,930
Total current liabilities	32,825	34,516
Non-current
Long-term debt (Note 18)	98,656	102,140
Other liabilities (Note 16)	26,910	23,016
Deferred income taxes	255	344
Other liabilities and deferred income	38,558	41,137
Payable to Automotive (Note 1)	910	1,881
Total Non-current	165,289	168,518
Intersector elimination	(1,112)	(2,083)
Total liabilities	164,177	166,435
0	0
EQUITY	Tax rate = 40%
Capital stock (Note 24)	2011	2010
Common Stock, par value $.01 per share (3,745 million shares issued)	37	37	Number of Shares
Class B Stock, par value $.01 per share (71 million shares issued)	1	1	3.8 billion
Capital in excess of par value of stock	20,905	20,803
Retained earnings/(Accumulated deficit)	12,985	(7,038)	Dividends Ex.only
Accumulated other comprehensive income/(loss)	(18,734)	(14,313)	$ 0.25
Treasury stock	(166)	(163)	35,680,000,000.00
Total equity/(deficit) attributable to Ford Motor Company	15,028	(673)	Stock Price/share	9.35
Equity/(Deficit) attributable to noncontrolling interests	43	31	$ 9.50	3,816,042,781
Total equity/(deficit)	15,071	(642)
Total liabilities and equity	179,248	165,793
FORD MOTOR COMPANY AND SUBSIDIARIES	2011
OI %	8.32%	1
NI %	14.8%	2
GP $	22,919	3
GP %	16.8%	4
WC $	91,670	5
Current ratio	3.79	6
Quick Ratio aka Acid test Ratio	3.46	7
A/R Turns	1.76	8
Credit Sales per day	373	9
A/R turnover	207.3	10
Inventory turnover	19.2	11
Days of inventory = average sale period	19.0	12
Aset turnover	0.76	13
Acctg. ROA [aka ROI] %	11.7%	14
Return on Total Assets	13.3%	20
EPS	$5.32	15
Times interest [expense] only	2.56	16
ROE %	280.3%	17
PE Ratio	1.79	18
Dividen payout ratio	4.7%	19
Dividend yieldt ratio	2.6%
Return common equiy	280.3%	21	Have only common in this ex.
BV per share	$3.97	22
Debt to equity ratio	10.9	23
Debt to asset ratio	0.92	24

HCT---&P of &N---&D,&T---&F,&A

Use student Ch.15 File

Ch.12

Excel 1
Segment Income Statement 12/31/2xx1
Digital Watches
Sales	$ 500,000
Less: variable expenses
Variable manufacturing costs	$ 120,000
Variable shipping costs	5,000
Commissions	75,000	200,000
Contribution margin	$ 300,000
Less: Fixed Costs & Expenses	1
General factory overhead	$ 60,000
Salary of line manager	90,000
Depreciation of equipment	50,000
Advertising - direct	100,000
Rent - factory space	70,000
General admin. expenses	30,000	400,000
Net Operating Profit/(Loss)	$ (100,000)
Excel 2	Elimination
+/- benefit
Sales	$ 500,000
Less: variable expenses	(200,000)
Contribution margin	$ (300,000)
1.	Can reduce Factory Rental Space = $70,000
Reduced "Fixed" Expense	2.	Eliminate Advertising on dropped watch = $100,000
Factory rent	$70,000	3.	Line Supervision Eliminated = $90,000
Advertising	$100,000
Line Supervision	$90,000	$260,000
Eliminate Wacth Net effect	($40,000)
Reduced Operating Income
Keep Digital Watch
Excel 2
Comparative approach
With & Without digital Watch Segment
Keep watch
With	Without	+/- benefit
Watch	Watch	Difference
Sales	$500,000	$0
Less: variable expenses
Variable manufacturing costs	$120,000	$0
Variable shipping costs	$5,000	$0
Commissions	$75,000	$0
Total Variable costs & expenses	$200,000	$0
Contribution margin	$300,000	$0	$300,000
Less: Fixed Costs & Expenses
General factory overhead	$60,000	$60,000	$0
Salary of line manager	$90,000	$0	($90,000)
Depreciation of equipment	$50,000	$50,000	$0
Advertising - direct	$100,000	$0	($100,000)
Rent - factory space	$70,000	$0	($70,000)
General admin. expenses	$30,000	$30,000	$0
Total Fixed Costs & Expenses	$400,000	$140,000	($260,000)
Net Operating Profit/(Loss)	$ (100,000)	$ (140,000)	$40,000
Keep Digital Watch
Excel 3
Avoided in Outsourced
Make in House costs	Variable costs
Direct materials	$9.00	$9.00
Direct labor	$5.00	$5.00
Variable overhead	$1.00	$1.00
Depreciation of special equip.	$3.00	No savings if poutsourced
Supervisor's salary	$2.00	$2.00
General factory overhead	$10.00	No savings if poutsourced
Unit product cost	$30.00	$17.00	Avoidable:Saved if outsourced
Excel 4
OUTSOURCE
Resale Value of 4A existing equipment	$0.00
Fixed Costs elimintaed with outsource	$0.00
Outsource cost per unit	$25.00
Outsource cost per unit	$25.00
Avoidable:Saved if outsourced	$17.00	Avoidable Costs
Net added cost per unit if otsourced	($8.00)
Qty	20,000	($160,000)
Net added total costs if Outsourced
In-house	In-house	Outsource
Comparative Total	per unit	Mfg.	$25.00
Direct materials	$9.00	$180,000	500,000
Direct labor	$5.00	$100,000
Variable overhead	$1.00	$20,000
Depreciation of special equip.	$3.00
Supervisor's salary	$2.00	$40,000
General factory overhead	$10.00
$340,000	$500,000
$160,000
Outsouce increased costs

The avoidable costs associated with making part 4A include direct materials, direct labor, variable overhead, and the supervisor’s salary.

Ch.13 NO NO

Cost of Capital	PE on
Additional	Future
$billion	Interst rate	PE now	earnings
Debt	50	8%
Market cap	150	18	14.5
5.6%	6.9%
PRETAX basis	11.1%
Pre tax basis
Cost of capital	10.3%
Hurdle Rate	15%	70% average cost of capital/ 30% negative
Risk factors vary: productivity project risk may be lower than new product risk
Hurdle rate:	10%
If WC now
Equipment	WC	Profit	Net Cash Flow	PV by Year
0	$ (160,000)	$ (100,000)	$ (260,000)	$ (260,000)
1	$ 80,000	$ 80,000	$ 72,727
2	$ 80,000	$ 80,000	$ 66,116
3	$ (30,000)	$ 80,000	$ 50,000	$ 37,566
4	$ 80,000	$ 80,000	$ 54,641
5	$ 5,000	$ 100,000	$ 80,000	$ 185,000	$ 114,870	$ 85,920
$ 85,920	=+E21+NPV(F18,E22:E26)
21%	"=+IRR(E21:E26,0.1)
Year	$	PV$
0	$ (3,170.00)	$ (3,170.00)
1	$ 1,000.00	$ 909.09
2	$ 1,000.00	$ 826.45
3	$ 1,000.00	$ 751.31
Project Life:	4	years	4	$ 1,000.00	$ 683.01
Eqpmnt cost	$ 250,000	($0.12)	$ (0.13)
Maintenace	2	end 2 yrs.
Salvage	$ 10,000
Working Capital	$ 20,000
Cash flow	$ 120,000	per year assumed AT
Hurdle Rate	14%
Cash flow per year	Inflow	Working	Net
Outflow	Annual	Salvage	Capital	Cash Flow
0	$ (250,000)	$ (20,000)	$ (270,000)
1	$ 120,000	$ 120,000
2	$ (90,000)	$ 120,000	$ 30,000
3	$ 120,000	$ 120,000
4	$ 120,000	$ 10,000	$ 20,000	$ 150,000
NPV @ Hurdle Rate	$ 28,156	=+F49+NPV(B45,F50:F53)	$ 150,000
IRR	19%	=+IRR(F17:F21,0.16)
Year	0	$ (104,320)
1	$ 20,000
2	$ 20,000
3	$ 20,000
4	$ 20,000
5	$ 20,000
6	$ 20,000
7	$ 20,000
8	$ 20,000
9	$ 20,000
10	$ 20,000
IRR	14.0%	=+IRR(C41:C51)
Year	0	$ (79,310)
1	$ 22,000
2	$ 22,000
3	$ 22,000
4	$ 22,000
5	$ 22,000
IRR	12.0%	=+IRR(C66:C71)
Discount Rate	10%	OLD	NEW	New - Old
Term/years	10	10	∆ Cash flow	∆ Cash flow
Year	0	-175000	-260000	-$300K+$40K	-85000	$ (85,000)
1	45000	60000	15000	$ 13,636
2	45000	60000	15000	$ 12,397
3	45000	60000	15000	$ 11,270
4	45000	60000	15000	$ 10,245
5	45000	60000	15000	$ 9,314
6	-35000	10000	replace brushes	45000	$ 25,401
7	45000	60000	15000	$ 7,697
8	45000	60000	15000	$ 6,998
9	45000	60000	15000	$ 6,361
10	45000	67000	+$50k + $7k	22000	$ 8,482
IRR	17.6%	17.2%	16.4%
NPV	$56,348	$83,149	$26,802	$26,802	$ 26,802
Profitability Index	32.2%	32.0%	NPV/Initial investment	31.5%
A - B
Rate	14%	A	B	∆	∆ NPV
0	$ (80,000)	$ (60,000)	$ (20,000)	$ (20,000)
1	$ 20,000	$ 16,000	$ 4,000	$ 3,509
2	$ 20,000	$ 16,000	$ 4,000	$ 3,078
3	$ 20,000	$ 16,000	$ 4,000	$ 2,700
4	$ 20,000	$ 16,000	$ 4,000	$ 2,368
5	$ 30,000	$ 24,000	$ 6,000	$ 3,116
IRR	10.9%	13.4%
NPV	($6,145)	($916)	($5,229)	$ (5,229)
Profitability Index	-7.7%	-1.5%	NPV/Initial investment
Old	New	∆ NPV
Rate	10%	Old	New	∆	PV/year	PV/year	PV/year
0	$ (4,500)	$ (12,000)	$ 7,500	$ (4,500)	$ (12,000)	$ 7,500
1	$ (10,000)	$ (6,000)	$ (4,000)	$ (9,091)	$ (5,455)	$ (3,636)
2	$ (10,000)	$ (6,000)	$ (4,000)	$ (8,264)	$ (4,959)	$ (3,306)
3	$ (10,000)	$ (6,000)	$ (4,000)	$ (7,513)	$ (4,508)	$ (3,005)
4	$ (10,000)	$ (6,000)	$ (4,000)	$ (6,830)	$ (4,098)	$ (2,732)
5	$ (9,750)	$ (3,000)	$ (6,750)	$ (6,054)	$ (1,863)	$ (4,191)
NPV	($42,253)	($32,882)	($9,371)	$ (42,253)	$ (32,882)	$ (9,371)
($1,464.78)	-17577.3040858818
($70,309)
PV$	PV$
Year	Tangible	Intangible	Total	PV$	Tangible	Intangible
0	$ (100,000)	$ - 0	$ (100,000)	"=+PMT(0.14,4,E200)	$ (100,000)
1	$ 10,000	24,320.48	$34,320	$ 30,106	$ 8,772	$ 21,334
2	$ 10,000	24,320.48	$ 34,320	$ 26,408	$ 7,695	$ 18,714
3	$ 10,000	24,320.48	$ 34,320	$ 23,165	$ 6,750	$ 16,416
4	$ 10,000	24,320.48	$ 34,320	$ 20,320	$ 5,921	$ 14,400
$ (60,000)	$ 97,282	14%	IRR	$ 100,000	$ 29,137	$ 70,863
$0.00	NPV
End year salvage value = $1040000
$ 1,040,000
20	Years
12%	hurdle rate
$ 10,032,145
Cash flows	∑ Disc.cash flow	Discounted cash flow	∑ discounted cash flow
0	$ (140,000)	$ (140,000)	$ (140,000)	$ (140,000)
1	$ 35,000	$ (105,000)	$ 30,702	$ (109,298)
2	$ 35,000	$ (70,000)	$ 26,931	$ (82,367)
3	$ 35,000	$ (35,000)	$ 23,624	$ (58,743)
4	$ 35,000	$ - 0	$ 20,723	$ (38,020)
5	$ 35,000	$ 35,000	$ 18,178	$ (19,842)
6	$ 35,000	$ 70,000	$ 15,946	$ (3,897)
7	$ 35,000	$ 105,000	$ 13,987	$ 10,091
8	$ 35,000	$ 140,000	$ 12,270	$ 22,360
Discount rate 14%	9	$ 35,000	$ 175,000	$ 10,763	$ 33,123
10	$ 35,000	$ 210,000	$ 9,441	$ 42,564
4	Years	6.28
Cash flows	∑ Disc.cash flow	Discounted cash flow	∑ discounted cash flow
0	$ (4,000)	$ (4,000)	$ (4,000)	$ (140,000)
1	$ 1,000	$ (3,000)	$ 877	$ (3,123)
2	$ - 0	$ (3,000)	$ - 0	$ (3,123)
3	$ 2,000	$ (1,000)	$ 1,350	$ (1,773)
4	$ 1,000	$ - 0	$ 592	$ (1,181)
5	$ 500	$ 500	$ 260	$ (921)
4	Years	N/A
Discount rate 14%

•Decker Company can purchase a new machine at a cost of $104,320 that will save $20,000 per year in cash operating costs. •The machine has a 10-year life.

BS IS data

2007	2006	2007	2006
Assets	Gross Margin %	Assets
Current assets:	EPS	$ 2.42	Current assets:
Cash	$ 30,000	$ 20,000	PE Ratio	$ 8.27	Cash	$ 30,000	$ 20,000
Accounts receivable, net	20,000	17,000	Div PO Ratio	83%	Accounts receivable, net	20,000	17,000
Inventory	12,000	10,000	Div Yield Ratio	Inventory	12,000	10,000
Prepaid expenses	3,000	2,000	ROA	18%	Add back AT Interest	Prepaid expenses	3,000	2,000
2010	2009	2008	2007	2006	2005	2004	2003	Total current assets	65,000	49,000	Return on common EQ	deduct preferred dinvidends	Total current assets	65,000	49,000
Sales	485,500	454,000	422,500	400,000	355,000	320,000	290,000	275,000	Property and equipment:	Book value per common share	common equity only	Property and equipment:
COGS	350,600	326,400	302,200	285,000	250,000	225,000	198,000	190,000	Land	165,000	123,000	Working Capital	Land	165,000	123,000
GM$	137,900	129,600	121,300	115,000	105,000	95,000	82,000	85,000	2009	2008	2007	2006	2005	2004	2003	2002	Buildings and equipment, net	116,390	128,000	Current Ratio	Buildings and equipment, net	116,390	128,000
Sales	156	147	145	129	116	105	105	100	Total property and equipment	281,390	251,000	Acid Test	Total property and equipment	281,390	251,000
% change from prior period	COGS	150	132	118	104	104	100	Total assets	$ 346,390	$ 300,000	AR Turnover	Total assets	$ 346,390	$ 300,000
Sales	6.9%	7.5%	5.6%	12.7%	10.9%	10.3%	5.5%	GM	135	124	112	108	108	100	DSO (avge. Coll. Per)
COGS	7.4%	8.0%	6.0%	14.0%	11.1%	13.6%	4.2%	Inventory turns
GM$	6.4%	6.8%	5.5%	9.5%	10.5%	15.9%	-3.5%	Averages Sales Period	365/Inv.turns
Liabilities & Stockholders Equity	Times Interest Earned	Liabilities & Stockholders Equity
2007	2006	Debt-to-Equity	2007	2006
Accounts payable	$ 39,000	$ 40,000	Accounts payable	$ 39,000	$ 40,000
Notes payable, short-term	3,000	2,000	Notes payable, short-term	3,000	2,000
Total current liabilities	42,000	42,000	Total current liabilities	42,000	42,000
Long-term liabilities:	Long-term liabilities:
Notes payable, long-term	70,000	78,000	Notes payable, long-term	70,000	78,000
Total liabilities	112,000	120,000	Total liabilities	112,000	120,000
Stockholders' equity:	Stockholders' equity:
Common stock, $1 par value	27,400	17,000	Common stock, $1 par value	27,400	17,000
Additional paid-in capital	158,100	113,000	Additional paid-in capital	158,100	113,000
Total paid-in capital	185,500	130,000	Total paid-in capital	185,500	130,000
Retained earnings	48,890	50,000	Retained earnings	48,890	50,000
Total stockholders' equity	234,390	180,000	Total stockholders' equity	234,390	180,000
Total liabilities and stockholders' equity	$ 346,390	$ 300,000	Total liabilities and stockholders' equity	$ 346,390	$ 300,000
2007	2006	2007	2006
Sales	$ 494,000	$ 450,000	Sales	$ 494,000	$ 450,000
Cost of goods sold	140,000	127,000	Cost of goods sold	140,000	127,000
Gross margin	354,000	323,000	Gross margin	354,000	323,000
Operating expenses	270,000	249,000	Operating expenses	270,000	249,000
Net operating income	84,000	74,000	Net operating income	84,000	74,000
Interest expense	7,300	8,000	Interest expense	7,300	8,000
Net income before taxes	76,700	66,000	Net income before taxes	76,700	66,000
Less income taxes (30%)	23,010	19,800	0.30	Less income taxes (30%)	23,010	19,800
Net income	$ 53,690	$ 46,200	Net income	$ 53,690	$ 46,200

Sales 2007 2006 2005 2004 2003 2002 145 129 116 105 105 100 COGS

2007 2006 2005 2004 2003 2002 150 132 118 104 104 100 GM 2007 2006 2005 2004 2003 2002 135 124 112 108 108 100

Sales 2007 2006 2005 2004 2003 2002 145 129 116 105 105 100 COGS

2007 2006 2005 2004 2003 2002 150 132 118 104 104 100 GM 2007 2006 2005 2004 2003 2002 135 124 112 108 108 100

Sales 2007 2006 2005 2004 2003 2002 145 129 116 105 105 100 COGS

2007 2006 2005 2004 2003 2002 150 132 118 104 104 100 GM 2007 2006 2005 2004 2003 2002 135 124 112 108 108 100

Sales 2007 2006 2005 2004 2003 2002 145 129 116 105 105 100 COGS

2007 2006 2005 2004 2003 2002 150 132 118 104 104 100 GM 2007 2006 2005 2004 2003 2002 135 124 112 108 108 100

CF review for Final Ch.14

Final Review	Affect on
Class Company, Inc.	Category	Cash
Balance Sheet as of	Increase	Increase
Assets:	12/31/08	12/31/09	(Decrease)	(Decrease)	Class Company, Inc.	Cash
Current Assets:	$s	$s	Balance Sheet as of	Increase	Increase
Cash	564,000	893,000	329000	(329000)	12/31/08	12/31/09	(Decrease)	(Decrease)
Accounts Receivable	600,000	675,000	75000	(75000)	Assets:
Prepaid Expenses	51,000	44,000	(7000)	7000	Current Assets:	$s	$s
Inventory	700,000	725,000	25000	(25000)	Cash	200,000	226,000
Total Current Assets:	1,915,000	2,337,000	422000	(422000)	Accounts Receivable	355,000	418,000
Prepaid Expenses	27,000	19,000
Plant Property & Equipment	1,000,000	1,125,000	125000	(125000)	3.1933333333	Other Current Assets	15,000	11,000
Accumulated Depreciation	(555,000)	(655,000)	(100000)	(100000)	P&L item	Total Current Assets:	597,000	674,000	0	0
Net Plant Property & Equipment	445,000	470,000	25000	(225000)
Plant Property & Equipment	954,000	1,215,000
Other Non-Current Assets:	Accumulated Depreciation	(332,000)	(445,000)	P&L item
Intangibles	355,000	310,000	(45000)	45000	P&L item	Net Plant Property & Equipment	622,000	770,000	0	0
Deferred Loan Placement Costs	35,000	35,000	0	0	P&L item
Other Non-Current assets	15,000	9,000	(6000)	6000	Other Non-Current Assets:
Total Other Non-Current Assets	405,000	354,000	(51000)	51000	Goodwill	375,000	350,000	P&L item
Deferred Loan Placement Costs	25,000	25,000	P&L item
Total Assets	2,765,000	3,161,000	396000	(596000)	Other Non-Current assets	15,000	14,000
Total Other Non-Current Assets	415,000	389,000	0	0
Liabilities:	0
Current Liabilities	Total Assets	1,634,000	1,833,000	0	0
Accounts Payable	225,000	250,000	25,000	25,000
Accrued Expenses	74,000	81,000	7,000	7,000	Liabilities:
Current Portion of LT debt	40,000	70,000	30,000	30,000	Current Portion of Long Term Debt	88,000	88,000
Other Current Liabilities	35,000	25,000	(10,000)	(10,000)	Accounts Payable	129,000	139,000
Total Current Liabilities	374,000	426,000	52,000	52,000	Accrued Expenses	51,000	64,000
Other Current Liabilities	23,000	11,000
Non-Current Liabilities	Total Current Liabilities	291,000	302,000	0	0
Long Term Debt	2,100,000	2,200,000	100,000	100,000
Deferred Income Taxes	95,000	105,000	10,000	10,000	P&L item	Non-Current Liabilities
Other Non-current Liabilities	64,000	47,000	(17,000)	(17,000)	Long Term Debt	1,100,000	915,000
Total Non-Current Liabilities	2,259,000	2,352,000	93,000	93,000	Deferred Income Taxes	83,000	99,000
Other Non-current Liabilities	14,000	12,000	P&L item
Total Liabilities	2,633,000	2,778,000	145,000	145,000	Total Non-Current Liabilities	1,197,000	1,026,000	0	0
Owners' Equity	Total Liabilities	1,488,000	1,328,000	0	0
Common Stock @ par = $0.01	100	100	0	0
Additional Paid-in Capital	99,900	99,900	0	0
Common Dividends Paid	(151,000)	(151,000)	(151,000)
Retained Earnings	32,000	434,000	402,000	402,000	Owners Equity
Total Owners' Equity	132,000	383,000	251,000	251,000	Common Stock @ par = $0.01	100	100
Additional Paid-in Capital	99,900	99,900
Total Liabilities and Owners' Equity	2,765,000	3,161,000	396,000	396,000	Retained Earnings	46,000	405,000
Total Owners' Equity	146,000	505,000	0	0
0	0
Total Liabilities and Owners Equity	1,634,000	1,833,000	0	0
Note: in this example we have goodwill - which is also a non-cash charge to income
like depreciation - so we add that back to net income just like deprecation:
0	0
Class Company, Inc.	Note: in this example we have goodwill - which is also a non-cash charge to income
Statement of Income	like depreciation - so we add that back to net income just like deprecation:
Period Ending 12/31/2009
$s	$s
Revenue	7,000,000	100.0%	Class Company, Inc.
Statement of Income
Cost of Goods Sold	5,000,000	71.4%	Period Ending 12/31/2009
$s	$s
Gross Profit	2,000,000	28.6%	Revenue	3,300,000	100.0%
Operating Expenses:	Cost of Goods Sold	1,788,000	54.2%
Selling expense	700,000	10.0%
General Expense	300,000	4.3%	Gross Profit	1,512,000	45.8%
Administrative expense	100,000	1.4%
Other Operating	162,000	2.3%	Wage Expense	721,000	21.8%
Amortization of Intangibles	45,000	0.6%	Advertising & Marketing Expense	78,000	2.4%
Total Operating Expenses	1,307,000	18.7%	Vehicle Expenses	22,000	0.7%
Insurance and Other	48,000	1.5%
Operating Income	693,000	9.9%	Depreciation	113,000	3.4%
Write-off of Goodwill	25,000	0.8%
Other Expense (	NBV = $52000, Cost $114000, sold $42000)	(10,000)	-0.1%	Total Expenses	1,007,000	30.5%
Interest Expense	(65,000)	-0.9%
Income Before Taxes	618,000	8.8%	Provision for Income Taxes	505,000	15.3%
Provision for Income Taxes	216,000	3.1%
Net Income	402,000	5.7%
Net Income	402,000	12.2%
Class Company, Inc.
Statement of Cash Flows for Period Ending 12/31/2009
$s
Cash Flows From Operating Activities:	Class Company, Inc.
Net Income	402,000	Statement of Cash Flows for Period Ending 12/31/2009
Plus: Depreciation Expense	162,000
Plus: Amortization Expense	45,000	$s
(Gain)/Loss on Sale of PPE	10,000
Changes in Current Assets and Liabilities	Cash Flows From Operating Activities:
(Increase)/Decrease Accounts Receivable	(75,000)	Net Income	402,000
(Increase)/Decrease Prepaid Expenses	7,000	Plus: Depreciation	0
(Increase)/Decrease Inventory	(25,000)	Plus: Write-off of Goodwill	0
Increase/(Decrease) Accounts Payable	25,000	Changes in Current Assets and Liabilities
Increase/(Decrease) Accrued Expenses	7,000	(Increase) Accounts Receivable	0
Increase/(Decrease) Other Current Liabilities	(10,000)	Decrease Prepaid Expenses	0
Decrease Other Current Assets	0
Other Changes	Increase Accounts Payable	0
Increase/(Decrease) in Deferred Taxes	10,000	Increase Accrued Expenses	0
Increase/(Decrease)in Other Long Term Liabilities	(17,000)	(Decrease) Other Current Liabilities	0
Total Change in Cash from Operating Activities	541,000	Other Changes
Decrease in Other Non-Current Assets	0
Cash From Investing Activities	Increase in Deferred Taxes	0
Capital Expenditures	(239,000)	Decrease in Other Long Term Liabilities	0
(increase)/Decrease Other Non-current Assets	6,000
Proceeds from disposal of PPE	42,000
Total Cash Flows from Investing Activities	(191,000)	Total Change in Cash from Operating Activities	402,000
Cash Flows from Financing Activities	Cash From Investing Activities
Increase/(Decrease) in Long term Debt	130,000
Divdends paid	(151,000)	Capital Expenditures	0
Total Cash Flows from Financing Activities	(21,000)	Total Cash Flows from Investing Activities	0
Net Change in Cash Position	329,000	0	Cash Flows from Financing Activities
Opening Cash Balance	564,000	Increase (decrease) in Invested Capital
Ending Cash Balance	893,000	Repayment of Debt	0
Total Cash Flows from Financing Activities	0
Ratio Analysis: 2009	Stock Price =	$ 45.00
# of Shares =	75,000
ratio 2 decimals; % format xx.x%
PE Ratio	8.40
Return on Total Assets	13.6%
Return on common equity	156.1%	there is no preferred
Book Value per share	$ 5.11
Working capital	1,911,000
Current ratio	5.49
Acid Test Ratio	3.68
A/R turnover	10.98	all sales are credit sales
Average collection period	32.79
Inventory turnover	7.02
Times interest earned	10.66	show as a positive #
Dedt to equity ratio	7.25
Net Change in Cash Position	402,000
Opening Cash Balance	200,000
Ending Cash Balance	226,000
Definition of	1 of 2
Cash Flow
This definition of cash flow provides a more accurate representation	Definition of
the funds the company has available to repay its debt and	Cash Flow
cash needs.
Cash flow From Operations
Cash flow from operations	Cash Flow = Net income:
= Net income:	=+ or - Non-cash income and expenses
=+ or - Non-cash Expenses (depreciation and amortization)	=+ or - Nonrecurring income and expenses
=+ or - Nonrecurring income and expenses (Extraordinary or discontinued Ops)	=+ or - Changes in the operating accounts
=+ or - Gain/loss on sales of fixed assets/LT intangibles - Other income/Expense	This definition of cash flow provides a more accurate representation
the funds the company has available to repay its debt and
+/- Changes in operating accounts	cash needs.
(aka working capital accounts)	The operating accounts referred to in the cash flow definition
include:	(sometimes called working capital accounts or operating
• Accounts receivable	Current Assets and Current liabilities for the most part	include:
• Inventory	• Accounts receivable	Current Assets and Current liabilities for the most part
• Prepaid assets	• Inventory
• Other short-term assets	• Prepaid assets
• Accounts payable	• Other short-term assets
• Accrued liabilities	• Accounts payable
• Other short-term liabilities	• Accrued liabilities
Notice that this list includes any asset or liability classifed as short-term	• Other short-term liabilities
or current on the balance sh	eet	except	:	Notice that this list includes any asset or liability shown short-term
• Cash and cash equivalents	we are measuring cash changes	or current section of the balance sh	eet	except	:
• Short-term investments	that's a cash equivalent	• Cash and cash equivalents	we are measuring cash changes
• Notes payable	a note payable though short term is a form of debt, i.e., Financing	• Short-term investments	that's a cash equivalent
• Current Portion Long Term Debt	This is short term because it’s the part of the long term debt	• Notes payable	a note payable though short term is a form of debt, i.e., Financing
due within 12 months but it's still debt to outside party	• Current Portion Long Term Debt	This is short term because it’s the part of the long term debt
not a supplier	due within 12 months but it's still debt to outside party
Notice that this section of the balance sheet that includes long term	not a supplier
assets or liabilities that relate to the Income Statement such as	Cash Flow from Investing Activities:
LT term deferred tax assets or liabilites	• It shows uses of cash to acquire assets, such as capital
expenditures, investments and acquisitions
Cash Flow from Investing Activities:	• Funds raised when any of these types of assets are sold are
• Uses of cash to acquire assets, such as capital	shown in this section as sources of cash
expenditures, investments and acquisitions
• Funds raised when any of these types of assets are	sold	are
shown in this section as sources of cash	Cash Flow from Financing Activities:
Shows increases or decreases in all sources of external
financing, such as short-term bank borrowings, commercial
Cash Flow from Financing Activities:	paper, long-term bank debt, other long-term debt and
Shows increases or decreases in all sources of external	subordinated debt	Bank & third party borrowings
financing, such as short-term bank borrowings, commercial	Also includes equity transactions, such as cash generated by
paper, long-term bank debt, other long-term debt and	stock issues or other capital injections, and cash used to
subordinated debt	Bank & third party borrowings	repurchase stock or to pay dividends
Also includes equity transactions, such as cash generated by	More invested capital less payments to owners
stock issues or other capital injections, and cash used to
repurchase stock or to pay dividends
More invested capital less payments to owners

HCT--&P of &N---&D,&T---&F,&A

Examine operating or financing

Run the businesss

External sources s

Internal Actions

Final Probs

A. Using following Balance Sheet & Income Statement, Peforform Ratio Analysis for ratio listed & Create a \Cash Flow Statement
Affect on
Class Company, Inc.	Category	Cash
Balance Sheet as of	Increase	Increase
Assets:	12/31/11	12/31/12	(Decrease)	(Decrease)	Class Company, Inc.	Cash
Current Assets:	$s	$s	Balance Sheet as of	Increase	Increase
Cash	188,000	216,000	28000	(28000)	12/31/08	12/31/09	(Decrease)	(Decrease)
Accounts Receivable	355,000	450,000	95000	(95000)	Assets:
Prepaid Expenses	39,000	19,000	(20000)	20000	Current Assets:	$s	$s
Inventory	500,000	550,000	50000	(50000)	Cash	200,000	226,000
Total Current Assets:	1,082,000	1,235,000	153000	(153000)	Accounts Receivable	355,000	418,000
Prepaid Expenses	27,000	19,000
Plant Property & Equipment	854,000	1,027,000	173000	(173000)	3.1933333333	Other Current Assets	15,000	11,000
Accumulated Depreciation	(335,000)	(447,000)	(112000)	112000	P&L item	Total Current Assets:	597,000	674,000	0	0
Net Plant Property & Equipment	519,000	580,000	61000	(61000)
Plant Property & Equipment	954,000	1,215,000
Other Non-Current Assets:	Accumulated Depreciation	(332,000)	(445,000)	P&L item
Intangibles	475,000	450,000	(25000)	25000	P&L item	Net Plant Property & Equipment	622,000	770,000	0	0
Deferred Loan Placement Costs	35,000	35,000	0	0	P&L item
Other Non-Current assets	10,000	4,000	(6000)	6000	Other Non-Current Assets:
Total Other Non-Current Assets	520,000	489,000	(31000)	31000	Goodwill	375,000	350,000	P&L item
Deferred Loan Placement Costs	25,000	25,000	P&L item
Total Assets	2,121,000	2,304,000	183000	(183000)	Other Non-Current assets	15,000	14,000
Total Other Non-Current Assets	415,000	389,000	0	0
Liabilities:	0
Current Liabilities	Total Assets	1,634,000	1,833,000	0	0
Accounts Payable	129,000	114,000	(15,000)	(15,000)
Accrued Expenses	53,000	62,000	9,000	9,000	Liabilities:
Current Portion of LT debt	29,000	61,000	32,000	32,000	Current Portion of Long Term Debt	88,000	88,000
Other Current Liabilities	23,000	11,000	(12,000)	(12,000)	Accounts Payable	129,000	139,000
Total Current Liabilities	234,000	248,000	14,000	14,000	Accrued Expenses	51,000	64,000
Other Current Liabilities	23,000	11,000
Non-Current Liabilities	Total Current Liabilities	291,000	302,000	0	0
Long Term Debt	1,050,000	950,000	(100,000)	(100,000)
Deferred Income Taxes	83,000	99,000	16,000	16,000	P&L item	Non-Current Liabilities
Other Non-current Liabilities	64,000	47,000	(17,000)	(17,000)	Long Term Debt	1,100,000	915,000
Total Non-Current Liabilities	1,197,000	1,096,000	(101,000)	(101,000)	Deferred Income Taxes	83,000	99,000
Other Non-current Liabilities	14,000	12,000	P&L item
Total Liabilities	1,431,000	1,344,000	(87,000)	(87,000)	Total Non-Current Liabilities	1,197,000	1,026,000	0	0
Owners Equity	Total Liabilities	1,488,000	1,328,000	0	0
Common Stock @ par = $0.01	100	100	0	0
Additional Paid-in Capital	99,900	99,900	0	0
Divdends	(100,000)
Retained Earnings	590,000	960,000	370,000	370,000	Owners Equity
Total Owners' Equity	690,000	960,000	370,000	370,000	Common Stock @ par = $0.01	100	100
Additional Paid-in Capital	99,900	99,900
Total Liabilities and Owners Equity	2,121,000	2,304,000	283,000	283,000	Retained Earnings	46,000	405,000
Total Owners' Equity	146,000	505,000	0	0
0	0
Total Liabilities and Owners Equity	1,634,000	1,833,000	0	0
Note: in this example we have goodwill - which is also a non-cash charge to income
like depreciation - so we add that back to net income just like deprecation:
0	0
Class Company, Inc.	Note: in this example we have goodwill - which is also a non-cash charge to income
Statement of Income	like depreciation - so we add that back to net income just like deprecation:
Period Ending 12/31/2009
$s	$s
Revenue	5,100,000	100.0%	Class Company, Inc.
Statement of Income
Cost of Goods Sold	3,050,000	59.8%	Period Ending 12/31/2009
$s	$s
Gross Profit	2,050,000	40.2%	Revenue	3,300,000	100.0%
Operating Expenses:	Cost of Goods Sold	1,788,000	54.2%
Selling expense	800,000	15.7%
General Expense	250,000	4.9%	Gross Profit	1,512,000	45.8%
Administrative expense	125,000	2.5%
Depreciation	124,000	2.4%	Wage Expense	721,000	21.8%
Write-off of Goodwill	25,000	0.5%	Advertising & Marketing Expense	78,000	2.4%
Total Operating Expenses	1,324,000	26.0%	Vehicle Expenses	22,000	0.7%
Insurance and Other	48,000	1.5%
Operating Income	726,000	14.2%	Depreciation	113,000	3.4%
Write-off of Goodwill	25,000	0.8%
Other Income [includes Gain/Loss Sale of Assets]	9,000	0.2%	Total Expenses	1,007,000	30.5%
Interest Expense	65,000	1.3%
Income Before Taxes	670,000	13.1%	Provision for Income Taxes	505,000	15.3%
Provision for Income Taxes	300,000	5.9%
Net Income	370,000	7.3%
Sale of assets in 2009
( NBV = $6000, Cost $22000, sold $15000)
Acquired New debt: $200,000
No Intangbles acquired
Net Income	370,000	11.2%
Class Company, Inc.
Statement of Cash Flows for Period Ending 12/31/2012
$s
Cash Flows From Operating Activities:	Class Company, Inc.
Net Income	370,000	Statement of Cash Flows for Period Ending 12/31/2009
Plus: Depreciation Expense	124,000
Plus: Amortization Expense	25,000	$s
Less: Gain on Sale of PPE	(9,000)
Changes in Current Assets and Liabilities	Cash Flows From Operating Activities:
(Increase) Accounts Receivable	(95,000)	Net Income	370,000
Decrease Prepaid Expenses	20,000	Plus: Depreciation	0
(Increase) Inventory	(50,000)	Plus: Write-off of Goodwill	0
(Decrease) Accounts Payable	(15,000)	Changes in Current Assets and Liabilities
Increase Accrued Expenses	9,000	(Increase) Accounts Receivable	0
(Decrease) Other Current Liabilities	(12,000)	Decrease Prepaid Expenses	0
Decrease Other Current Assets	0
Other Changes	Increase Accounts Payable	0
Increase in Deferred Taxes	16,000	Increase Accrued Expenses	0
Decrease in Other Long Term Liabilities	(17,000)	(Decrease) Other Current Liabilities	0
Total Change in Cash from Operating Activities	366,000	Other Changes
Decrease in Other Non-Current Assets	0
Cash From Investing Activities	Increase in Deferred Taxes	0
Capital Expenditures	(197,000)	Decrease in Other Long Term Liabilities	0
Other Non-current Assets	6,000
Proceeds from disposal of PPE	21,000
Total Cash Flows from Investing Activities	(170,000)	Total Change in Cash from Operating Activities	370,000
Cash Flows from Financing Activities	Cash From Investing Activities
Repayment of Debt	(68,000)	Capital Expenditures	0
Total Cash Flows from Financing Activities	(68,000)	Total Cash Flows from Investing Activities	0
Net Change in Cash Position	128,000	(100,000)	Cash Flows from Financing Activities
Opening Cash Balance	188,000	Increase (decrease) in Invested Capital
Ending Cash Balance	216,000	Repayment of Debt	0
Total Cash Flows from Financing Activities	0
B.	Ratio Analysis: 2012	Stock Price =	$ 45.00
# of Shares =	75,000
ratio 2 decimals; % format xx.x%
PE Ratio	9.12
Return on Total Assets	16.7%
Return on common equity	44.8%	there is no preferred
Book Value per share	$ 12.80
Working capital	987,000
Current ratio	4.98
Acid Test Ratio	2.69
A/R turnover	12.67	all sales are credit sales
Average collection period	28.81
Inventory turnover	5.81
Times interest earned	11.17	show as a positive #
Dedt to equity ratio	1.40
C. use Hi-Low Method to compute Fixed OH per month & variable OH per unit
Manufactiring Overhead 2010:	Qty. Produced	Spending
Sept	10,000	37600
Oct	9,600	32400
Nov	9,100	26200
Dec	10,900	47800
D.Using data set below compute [1]:Contribtion margin per unit
[2]BE units, [3] Operating leverage at Base volume [4] Units to achive target income
[5] "What-if"--Profit if Advertising triples, Fixed selling decrease by $20000,
Variable material product cost increase by $1 per unit, sell price unit up $15
Units decreas by 12%
Fixed	Variable per unit	Net Change in Cash Position	370,000
Sell prce per unit	$ 70.00	Ending Cash Balance	226,000
Diect labor & materials	$ 25.00
Manufacturing overhead	$ 55,000	$ 9.00
Selling Expense excpt advertising	$ 35,000	10%	of sell prce
Advertsing	$ 19,000
Adninistrative expense	$ 28,000	$ 1.00
Base units	5,500
E. Cap X: Compute NPV, Profitabilty Index,
Initial capital including working capital	120,000
Initial working capital recovered in last year	20,000
Project life	4	years
Capital value at end of project	15,000
Before tax savings per year	83,333
before tax - one time maintenace fees in yr.3	20,000
tax rate	40%
Cost of debt	6%
amount of debt	5,000,000
cost of equity	12%
Amount of equity	10,000,000

Student:________________________________________________ &P of &N

ACC220------HCT &"Arial,Bold Italic"&12&EOpen Book Portion &"Arial,Bold"&12Cash Flows & Ratios&"Arial,Regular"&10 Final Exam

operating

Final review

Rider University
Managerial Accounting	2 hour test
HCTamburro	No extra time
Final Study Aid	Revised	Ends in 2 hrs.
A.	Open book:	Problems to solve
B.	1.	Ratio computations	Ch. 15	[you get comparative BS & IS]
2.	Cash Flow [1 section only]	Ch.14
3.	Hi-low variable cost Y = a + bx to get fixed & variable manufacturing costs
then CVP	BE, Target, Operating leverage	Ch. 5,6
4.	CapX	Ch.13	NPV, Simple rate of return
5.	Flexible budgeting	Ch.9	brief combined problem
6.	Standard Costing	Ch.10	on Overhead - Fxd. Variable
C.	Duration: 3 hours [for open & closed] and that's it - no extra time
D.	Caution: Open book sounds great but often causes students
to use too much time on a problem and
run out of time; be careful about this
E.	Tools
you can use for open book:
textbook
any & all notes
calculator without more than nominal memory
PC/Laptop/Handheld/phone/Smartphone/advanced functionhandheld calculator etc with MS apps or similar handheld	NO NO NO NO
Web-book NO NO NO

HCT---&P of &N---&D,&T---&F,&F

Ch.6VarAbs Cost OLD

Chapter 6 Variable/ FAC Costing	Chapter 6 Variable/ FAC Costing	Chapter 6 Variable/ FAC Costing
Complex UP	$s	$s	$ Per Unit	$ Per Unit	$ Per Unit	Complex	No change	$s	$s	$ Per Unit	$ Per Unit	$ Per Unit	Complex DOWN	$s	$s	$ Per Unit	$ Per Unit	$ Per Unit
Variable	Fixed	Variable	Fixed	Variable	Fixed	Variable	Fixed	Variable	Fixed	Variable	Fixed
Units Produced	5,000	Units Produced	5,000	Units Produced	5,000
Sell Price per unit	$ 13.50	Sell Price per unit	$ 13.50	Sell Price per unit	$ 13.50
Expenses/Costs	Expenses/Costs	Expenses/Costs
Direct Materials	11,500	$ 2.300	$ - 0	Direct Materials	11,500	$ 2.300	$ - 0	Direct Materials	11,500	$ 2.300	$ - 0
Direct Labor	9,800	$ 1.960	$ - 0	Direct Labor	9,800	$ 1.960	$ - 0	Direct Labor	9,800	$ 1.960	$ - 0
Manufacturing OH	7,800	12,500	$ 1.560	$ 2.500	Manufacturing OH	7,800	12,500	$ 1.560	$ 2.500	Manufacturing OH	7,800	12,500	$ 1.560	$ 2.500
Selling Expenses	2,500	7,500	$ 0.500	$ 1.500	Selling Expenses	2,500	7,500	$ 0.500	$ 1.500	Selling Expenses	2,500	7,500	$ 0.500	$ 1.500
Admin. Expense	6,600	$ 1.320	Admin. Expense	6,600	$ 1.320	Admin. Expense	6,600	$ 1.320
Totals:	31,600	26,600	$ 6.320	$ 5.320	$ 13.50	Totals:	31,600	26,600	$ 6.320	$ 5.320	$ 13.50	Totals:	31,600	26,600	$ 6.320	$ 5.320	$ 13.50
$ Per Unit	$ Per Unit	$ Per Unit	$ Per Unit	$ Per Unit	$ Per Unit
Variable	Fixed	Variable	Fixed	Variable	Fixed
Cost of Production	Variable	$ 5.820	Cost of Production	Variable	$ 5.820	Cost of Production	Variable	$ 5.820
FAC	8.32	FAC	8.32	FAC	8.32
Beginning Inventory Units	1100	$ 5.820	8.32	FAC	Beginning Inventory Units	0	$ 5.820	8.32	FAC	Beginning Inventory Units	0	$ 5.820	8.32	FAC
Units Sold	4950	Units Sold	5000	Units Sold	5100
Period Costs:	Variable	FAC	Period Costs:	Variable	FAC	Period Costs:	Variable	FAC
Manufacturing OH	12,500	0	Manufacturing OH	12,500	0	Manufacturing OH	12,500	0
Selling Expenses	7,500	10,000	Selling Expenses	7,500	10,000	Selling Expenses	7,500	10,000
Admin. Expense	6,600	6,600	Admin. Expense	6,600	6,600	Admin. Expense	6,600	6,600
Total Period Costs	26,600	16,600	Total Period Costs	26,600	16,600	Total Period Costs	26,600	16,600
Var. costing	FAC Costing	Var. costing	FAC Costing	Var. costing	FAC Costing
Sales	$ 66,825	$ 66,825	Sales	$ 67,500	$ 67,500	Sales	$ 68,850	$ 68,850
Variable Cost of Sales	28,809	28,809	Variable Cost of Sales	29,100	29,100	Variable Cost of Sales	29,682	29,682
Fixed Mfg. OH	- 0	12,375	Fixed Mfg. OH	- 0	12,500	Fixed Mfg. OH	- 0	12,750
Variable Selling Expense	2,500	- 0	Variable Selling Expense	2,500	- 0	Variable Selling Expense	2,500	- 0
Contribution Margin	35,516	Contribution Margin	35,900	Contribution Margin	36,668
Gross Profit	25,641	Gross Profit	25,900	Gross Profit	26,418
Fixed Mfg. OH	12,500	- 0	Fixed Mfg. OH	12,500	- 0	Fixed Mfg. OH	12,500	- 0
Variable Selling Expense	- 0	2,500	Variable Selling Expense	- 0	2,500	Variable Selling Expense	- 0	2,500
Fixed Selling Expense	7,500	7,500	Fixed Selling Expense	7,500	7,500	Fixed Selling Expense	7,500	7,500
Admin. Expense	6,600	6,600	Admin. Expense	6,600	6,600	Admin. Expense	6,600	6,600
Operating expenses	26,600	16,600	Operating expenses	26,600	16,600	No change in	Operating expenses	26,600	16,600
Difference	Fixed MOH	Difference	Fixed MOH	Difference	Fixed MOH
Operating Income	8,916	9,041	125	into Inventory	Operating Income	9,300	9,300	- 0	in Inventory	Operating Income	10,068	9,818	(250)	from Inventory
$s	$s	$s
Units	Var. costing	FAC Costing	Units	Var. costing	FAC Costing	Units	Var. costing	FAC Costing
Beginning Inventory	1100	6,402	9,152	Beginning Inventory	0	0	0	Beginning Inventory	1100	6,402	9,152
Produced	5,000	Produced	5,000	Produced	5,000
Sold	(4,950)	Sold	(5,000)	Sold	(5,100)
Ending Inventory	1150	6,693	9,568	Ending Inventory	0	0	0	Ending Inventory	1000	5,820	8,320
291	416	125	0	0	0	(582)	(832)	(250)
Production = sales;	unit costs did not change from inventory per unit
Qty	Var.Each
Sales	500	1000
Variable Materials	450
Variable direct labor	120
Variable overhead	200
Sales commission	6%	of sales $s
Fixed Mfg. overhead spending = applied	35000
Fixed Selling & admin	25000
Beginning Inventory	252,000	Overhead	Overhead
Qty.	300	Materials	Labor	Variable	Fxd	Sum
Each	450	120	200	70	840
$s	135,000	36,000	60,000	21,000	252,000
Sales = production
Production	500	Overhead	Overhead
Qty.	500	Materials	Labor	Variable	Fxd	CoGManufactured
Each	450	120	200	70	840
$s	225,000	60,000	100,000	35,000	420,000
Variable Income statement	Full absoprtion income statement [A]
Sales	500,000	Sales	500,000
Variable costs & expenses	Cost of Goods Sold [units]
Variable direct materials	225,000	Direct marterials	225,000
Variable direct labor	60,000	Direct labor	60,000
Variable mrg. Overhead	100,000	Mfg. overhead	135,000	+ 100000+ 35000
Variable CoGS	385,000	Total CoGS	420,000
Variable S&A Expenses	30,000	Gross Margin [Gross Profit]	80,000
Total variable costs & expenses	415,000	Fixed	Variable
Contribution Margin	85,000	Sales & Admin	55,000	25000	30,000
Contribution Margin %	17.0%	Total fixed expenses	55,000
Fixed expenses
Manufacturing	35,000	Net income	25,000
Sales & Admin	25,000
Total fixed expenses	60,000	Same no change inventory $
no change in unit costs
Net income	25,000
5.0%	Full absoprtion income statement [B]
Sales	500,000
Operating leverage	3.40
Cost of Goods Sold [+B +CoGM -End = CoGS]
+Beginning	252,000
+CoG Manufactured	420,000
Same if beginning & ending Invetory	- Ending	(252,000)
is the same per unit & total	Total CoGS	420,000
Gross Margin [Gross Profit]	80,000
Sales & Admin	55,000	0	- 0
Total fixed expenses	55,000
Net income	25,000
Same no change in ventory
no change in unit costs
20000	$ 7.50
30000	$ 5.00
$ 6.00

HCT Ch. 6 - Var/FAC Costing &P of &N, &D-&T, &F-&A

Inventory UP

Inventory no change

Inventory DOWN

Ch.6 VarFAC cost NEW

Chapter 6 Variable/ FAC Costing	Chapter 6 Variable/ FAC Costing	Chapter 6 Variable/ FAC Costing
Variable selling varies with sales units	Used the same inventory cost as production cost in ths example	Variable selling varies with sales units	Used the same inventory cost as production cost in ths example	Variable selling varies with sales units	Used the same inventory cost as production cost in ths example
Variable manufacturing varies with units produced	Variable manufacturing varies with units produced	Variable manufacturing varies with units produced
Variable CoGS varies with units sold	Variable CoGS varies with units sold	Variable CoGS varies with units sold
Given	Computed	Given	Computed	Given	Computed
Data Set	Computed	Given	Variable cost/expense	Sell	Data Set	Computed	Given	Variable cost/expense	Sell	Data Set	Computed	Given	Variable cost/expense	Sell
Complex INV.no change	$s	$s	$ Per Unit	$ Per Unit	$ Per Unit	Complex I	nv. Up	$s	$s	$ Per Unit	$ Per Unit	$ Per Unit	Complex Inv. DOWN	$s	$s	$ Per Unit	$ Per Unit	$ Per Unit
Variable	Fixed	Variable	Fixed	Variable	Fixed	Variable	Fixed	Variable	Fixed	Variable	Fixed
Units Produced	5,000	Units Produced	5,100	Units Produced	4,800
Units Sold	5,000	Units Sold	5,000	Units Sold	5,000
Sell Price per unit	$ 23.50	Sell Price per unit	$ 23.50	Sell Price per unit	$ 23.50
Beginning Inventory/units	Beginning Inventory/units	Beginning Inventory/units
2,500	2,500	2,500
Expenses/Costs of Goods manufactured	Expenses/Costs of Goods manufactured	Expenses/Costs of Goods manufactured
Direct Materials	Cost	11,500	$ 2.300	$ - 0	Direct Materials	Cost	11,730	$ 2.300	$ - 0	Direct Materials	Cost	11,040	$ 2.300	$ - 0
Direct Labor	Cost	9,800	$ 1.960	$ - 0	Sum	Direct Labor	Cost	9,996	$ 1.960	$ - 0	Direct Labor	Cost	9,408	$ 1.960	$ - 0
Manufacturing OH	Cost	7,800	18,500	$ 1.560	$ 3.700	$ 5.260	Manufacturing OH	Cost	7,956	18,500	$ 1.560	$ 3.627	Manufacturing OH	Cost	7,488	18,500	$ 1.560	$ 3.854
Selling Expenses	Exp.	2,500	7,500	$ 0.500	$ 1.500	Selling Expenses	Exp.	2,500	7,500	$ 0.500	$ 1.500	Selling Expenses	Exp.	2,500	7,500	$ 0.500	$ 1.500
Admin. Expense	Exp.	6,600	$ 1.320	Admin. Expense	Exp.	6,600	$ 1.320	Admin. Expense	Exp.	6,600	$ 1.320
Totals:	31,600	32,600	$ 6.320	$ 6.520	$ 28.76	Totals:	32,182	32,600	$ 6.320	$ 6.447	$ 23.50	Totals:	30,436	32,600	$ 6.320	$ 6.674	$ 23.50
Manufacturing Overhead	Manufacturing Overhead	Manufacturing Overhead
$ Per Unit	$ Per Unit	$ Per Unit	$ Per Unit	$ Per Unit	$ Per Unit
Costing Method for Inc.Statement/Inventory	èè	Variable Costing	FAC costing	Costing Method for Inc.Statement/Inventory	èè	Variable Costing	FAC costing	Costing Method for Inc.Statement/Inventory	èè	Variable Costing	FAC costing
Cost of Production	Variable Costing Method	$ 5.820	Cost of Production	Variable Costing Method	$ 5.820	Cost of Production	Variable Costing Method	$ 5.820
FAC Cossting Method	$ 9.520	FAC Cossting Method	$ 9.447	FAC Cossting Method	$ 9.674
Total MfgOH only/unit	$ 1.560	$ 5.260	Total MfgOH only/unit	$ 1.560	$ 5.187	Total MfgOH only/unit	$ 1.560	$ 5.414
Units	Units	Units
Produced	5,000	CoG Manufactured	Produced	5,100	CoG Manufactured	Produced	4,800	CoG Manufactured
Total	$ 29,100	$ 47,600	Total	$ 29,682	$ 48,182	Total	$ 27,936	$ 46,436
Mfg.OH only	$ 7,800	$ 26,300	Mfg.OH only	$ 7,956	$ 26,456	Mfg.OH only	$ 7,488	$ 25,988
Beginning Inventory Units	1100	$ 6,402	$ 10,472	Total cost	Beginning Inventory Units	1100	$ 5.820	9.447	Total cost	Beginning Inventory Units	1100	$ 5.820	9.674	Total cost
Units Sold	5,000	$ 1,716	$ 5,786	MOH only	Units Sold	5,000	$ 1,716	$ 5,706	MOH only	Units Sold	5,000	$ 1,716	$ 5,956	MOH only
Period Costs:	Variable	FAC	Period Costs:	Variable	FAC	Period Costs:	Variable	FAC
Manufacturing OH	18,500	0	Manufacturing OH	18,500	0	Manufacturing OH	18,500	0
Selling Expenses	7,500	10,000	Selling Expenses	7,500	10,000	Selling Expenses	7,500	10,000
Admin. Expense	6,600	6,600	Admin. Expense	6,600	6,600	Admin. Expense	6,600	6,600
Total Period Costs	32,600	16,600	Total Period Costs	32,600	16,600	Total Period Costs	32,600	16,600
Var. costing	FAC Costing	Var. costing	FAC Costing	Var. costing	FAC Costing
Sales	$ 117,500	$ 117,500	Sales	$ 117,500	$ 117,500	Sales	$ 117,500	$ 117,500
Variable Cost of Sales	29,100	29,100	$ 5.820	$ 9.520	Variable Cost of Sales	29,100	29,100	Variable Cost of Sales	29,100	29,100
Fixed Mfg. OH	- 0	18,500	5,000	5,000	Fixed Mfg. OH	- 0	18,137	Fixed Mfg. OH	- 0	19,271
CoGSold	29,100	47,600	$ 29,100	$ 47,600	CoGSold	29,100	47,237	CoGSold	29,100	48,371
Variable Selling Expense	2,500	- 0	Variable Selling Expense	2,500	- 0	Variable Selling Expense	2,500	- 0
Contribution Margin	85,900	Contribution Margin	85,900	Contribution Margin	85,900
Gross Profit	69,900	Gross Profit	70,263	Gross Profit	69,129
Fixed Mfg. OH	18,500	- 0	Fixed Mfg. OH	18,500	- 0	Fixed Mfg. OH	18,500	- 0
Variable Selling Expense	- 0	2,500	Variable Selling Expense	- 0	2,500	Variable Selling Expense	- 0	2,500
Fixed Selling Expense	7,500	7,500	Fixed Selling Expense	7,500	7,500	Fixed Selling Expense	7,500	7,500
Admin. Expense	6,600	6,600	Admin. Expense	6,600	6,600	Admin. Expense	6,600	6,600
Operating expenses	32,600	16,600	No change in	Operating expenses	32,600	16,600	PUT	Operating expenses	32,600	16,600	TAKE
Difference	Fixed MOH	Difference	Fixed MOH	é	Difference	Fixed MOH	ê
Operating Income	53,300	53,300	- 0	into Inventory	Operating Income	53,300	53,663	363	in Inventory	Operating Income	53,300	52,529	(771)	from Inventory
$s	$s	$s
Units	Var. costing	FAC Costing	Units	Var. costing	FAC Costing	Units	Var. costing	FAC Costing
Beginning Inventory	1100	6,402	10,472	+	Beginning Inventory	1100	6,402	10,392	+	Beginning Inventory	1100	6,402	10,642	+
Produced	5,000	29,100	47,600	+	Produced	5,100	29,682	48,182	+	Produced	4,800	27,936	46,436	+
Sold	(5,000)	29,100	47,600	-	Sold	(5,000)	29,100	47,237	-	Sold	(5,000)	29,100	48,371	-
Ending Inventory	1100	6,402	10,472	=	Ending Inventory	1200	6,984	11,337	=	Ending Inventory	900	5,238	8,707	=
0	0	0	582	945	363	(1,164)	(1,935)	(771)
Check [assuming beginning cost unit = produced cost per unit]	per unit	Check [assuming beginning cost unit = produced cost per unit]	per unit	Check [assuming beginning cost unit = produced cost per unit]	per unit
Produced	Sold	Diff	Fxd.MfgOH	$s	Produced	Sold	Diff	Fxd.MfgOH	$s	Produced	Sold	Diff	Fxd.MfgOH	$s
Produced Qty. - Sold Qty.	5,000	(5,000)	0	3.700	0	Produced Qty. - Sold Qty.	5,100	(5,000)	100	3.627	363	Produced Qty. - Sold Qty.	4,800	(5,000)	(200)	3.854	(771)
No change	FAV	UNFAV
Units to get cost above	éééé	Slide 43
+ B + Prodcution to FG - Ending = CoGS below	êêêê
Using Above data
Variable Income statement	Full absorption income statement [A]
Sales	117,500	Sales	117,500	No change	using	77500
in inventory	per unit	70000
Variable costs & expenses	Cost of Goods Sold [units]	1.1071428571
Variable direct materials	11,500	Direct materials	11,500
Variable direct labor	9,800	Direct labor	9,800	using cost per unit
Variable Mfg,. Overhead	7,800	Mfg. overhead	26,300	$ 5.260	per unit
Variable CoGS	29,100	Total CoGS	47,600
Variable S&A Expenses	2,500	Gross Margin [Gross Profit]	69,900
Total variable costs & expenses	31,600	Fixed	Variable
Contribution Margin	85,900	Sales & Admin	16,600	14,100	2,500
Contribution Margin %	73.1%	Total fixed expenses	16,600
Fixed expenses
Manufacturing	18,500	Net income	53,300
Sales & Admin	14,100
Total fixed expenses	32,600	Same if no change inventory $
AND no change in unit costs from prior period to current period
Net income	53,300
45.4%	Full absorption income statement [B]
Sales	117,500	using
Operating leverage	1.61
Cost of Goods Sold [	+B +CoGM -End = CoGS	]
+Beginning	10,472	The entire company
+CoG Manufactured	47,600	Sales	$ 500,000
Same if beginning & ending Inventory	- Ending	(10,472)	Vartiable Costs	230,000
is the same per unit & total	Total CoGS	47,600	CM $	270,000
Gross Margin [Gross Profit]	69,900	Fixed Costs	195,000
Net Operating Income	75,000
Sales & Admin	16,600
Total fixed expenses	16,600	230,000
230,000
230,000
Net income	53,300	230,000
230,000
Same if no change inventory $	230,000	VARIABL*E	F * A * C
AND no change in unit costs from prior period to current period	230,000	Variable Format income statement	FAC Income statement
Manufacturing
Fixed OH	Fixed expense charged to IS as incurred	into inventory when made from inventory when sold; part of CoGS
Variable OH	into inventory when made from inventory when sold; part of CoGS	into inventory when made from inventory when sold; part of CoGS
Direct materials	into inventory when made/purchased THEN from inventory when sold; part of CoGS	into inventory when made/purchased THEN from inventory when sold; part of CoGS
Direct labor	into inventory when incurred/made THEN from inventory when sold; part of CoGS	into inventory whenincurred/made THEN from inventory when sold; part of CoGS
Sales & Administration
Fixed	Charged to IS as incurred	Charged to IS as incurred
Variable	Charged to IS as incurred But shown as variable exepnse above Contribution Margin	Charged to IS as incurred But included as Period expense below Gross Margin [or Gross Profit]
Types of Costs & Expenses
Natural	By Nature of the Expense: Salaries, Utilities, Insurance	A
Functional	By Function, department, Organization Structure, Selling, Engineering, QA, Accounting…	B
Variable	Varies directly with Sales or Production: Direct Labor, Sales Commissions...	C
Fixed	Does NOT vary with Sales or Production	D
Direct	Traceable to a cost Object [such as a Product or capital project]	E
Indirect	Not Traceable but can be assigned via selected measure [e..g.to product via DL hrs.]	F
Conversion Costs of Product	Direct Labor & manufacturing overhead	G
Prime costs	Direct Material & Direct Labor	H
Common costs	Costs to support a group of cost objects	I
Traceable costs	Traceable to a cost Object but extends beyond product costs such as Traceable ABC costs	G
GE GEOGRAPHIC REVENUES
V%
(Dollars in billions)	2015	2014	2013	2015-2014	2014-2013
U.S.	$	53.2	$	51.1	$	49.4	4 %	4 %
Non-U.S.
Europe	16.8	18.4	18.2
Asia	19.3	20.2	20.9
Americas	12	11.8	11.3
Middle East and Africa	16	15.6	13.5
Total Non-U.S.	64.1	66	63.9	(3)%	3 %
Total	$	117.4	$	117.2	$	113.2	- %	3 %
Non-U.S. Revenues as a % of Consolidated Revenues	55%	56%	56%
Per Unit
SP	$200.00	$4,600,000
Var. costs M	$60.00	$1,380,000
Var. costs L	$22.00	$506,000
Var. costs Mfg. OH	$28.00	$644,000
Var.Sell. Comm.	4%	$8.00	$184,000	$2,714,000
$1,886,000
Beg. Inventory Qty.	6,000	all
Make	25,000	same var.
Sell	23,000	unit cost
End Qty	8,000
Fxd MOH/unit
Fxd. Mfg. OH	$500,000	$20.00
Fxd. SG&A	$1,050,000	$1,550,000
Profit	$336,000
Var format
Begin MOH in Inventory	$120,000	6,000	23,000
Added FOH	$500,000	$20.00	$20.00
End FOH	-$160,000	120,000	460,000
to CoGS	$460,000	($500,000)
(40,000)
GAAP/FAC	Var format
Sales	$4,600,000	$4,600,000
CoGS
Var. costs M	$1,380,000	$1,380,000	Var. costs M
Var. costs L	$506,000	$506,000	Var. costs L
Var. costs Mfg. OH	$644,000	$644,000	Var. costs Mfg. OH
Fxd. MOH	460,000	$184,000	Var Selling
Total CoGS	$2,990,000	$2,714,000	tota Var.
Gross Profit	$1,610,000	$1,886,000	Contrib Margin
SG&A
Var Sell	$184,000	$ 500,000	Fxd. MOH
Fxd. SG&A	$1,050,000	$ 1,050,000	Fxd. SG&A
SG&A	$1,234,000	$ 1,550,000
Oper.Income	$376,000	$ 336,000

ACC220---HCT---&P of &N---&D,&T---&F,&A

Inventory UP

Inventory no change

Inventory DOWN

Ch.5CVP options NO ACC220

Rider University
Harold Tamburro
Cost-Volume-Profit Analysis	CVP Analysis
Data Section	ClassCo, Inc	US$s	Varies with
Base Case	2010	%	Sales$ [S] or Prodn. Units [P]
Fixed	Variable*
Production	Costs
Direct Materials	$ 4.30	Production
Direct Labor	4.70	Production
Factory OH	$ 225,000	3.00
Selling	Expenses
Sales Salaries & Commissions	97,000	0.80	4.00%	Sales
Advertising	47,500	comm. is a %, not amount
Misc.Selling Expense	16,200
General	Expenses
Office Salaries	87,000
Supplies	12,300	1.25	Sales
Misc.. General Expense	15,000
Total	$ 500,000	$ 14.05	13.25
+ 4% of sales
Selling Price	$ 20.00
Target Income	$ 200,000
Expected Unit Sales	BASE	90,000
* per unit
ClassCo, Inc
Contribution Margin
Per Unit
Sell Price	$ 20.00
Variable: Cost & Expenses
Costs:	Direct Materials	$ 4.30
Direct Labor	4.70
Factory OH	3.00
Total Variable Costs	$ 12.00
Expenses:	Sales Salaries & Commissions	$ 0.80
Supplies	1.25
Total Variable Expenses	$ 2.05
Total: Base:Variable Cost & Expenses	$ 14.05
Contribution per unit	$	$ 5.95
Contribution Margin (%)	%	29.8%
ClassCo, Inc
Profits
BASE	Profit at Expected (Base) Volume
Expected Unit Sales	90,000
Contribution per unit	$ 5.95
Contribution Amount	$ 535,500
Less: Fixed Cost/Expense	$ 500,000
Profit at Expected Volume	$ 35,500
BE	Breakeven (Income = 0)	Per Unit	Amount$
Sell Price	$ 20.00	$ 1,680,680
Total: Base:Variable Cost & Expenses	$ 14.05	$ 1,180,678
Contribution	$ 5.95	$ 500,002
Fixed Costs & Expenses	$ 5.95	$ 500,000
BE Units	84,034
Profit	(BE → Profit = 0)	$ - 0	$ - 0
TARGET	Unit Sales to meet Target Income	Per Unit	Amount$
Sell Price	$ 20.00	$ 2,352,940
Total: Base:Variable Cost & Expenses	$ 14.05	1,652,940
Contribution	$ 5.95	700,000
Fixed Costs & Expenses	$ 4.25	500,000
Target Income	$ 1.70	200,000
Total Fixed Costs & Exp. + Target Income	$ 5.95	$ 700,000
Target Units	117,647	$ 2,352,940
ClassCo, Inc
"What if"
President	a.	Cut price by 10%
which increases unit volume 30%
Sales Mngr.	b.	Put Sales personnel on all commissions which
reduces fixed salaries by $77,000
and increases variable sales expenses per unit by $1.95
volume would increase by 30%
Production VP	c.	Raise quality resulting in increase direct materials per unit of $1.00
increase in direct labor $0.50
increase fixed factory OH by $40,000
and double advertising →→ can raise price per unit by $2.00
and increase unit sales 35%
Controller	d.	double commissions %
triple advertisng
increase unit sales by 40%
President:
a.	Cut price by 10%
which increases unit volume 30%
Selling Price	20.00	per unit
a. Increase [decrease.] Unit SP	(2.00)	10%
a. New unit SP	18.00	per unit
Total: Base:Variable Cost & Expenses	14.05	per unit
a. Increase [decrease] Variable Costs	- 0
a. Increase [decrease] Variable Expenses	(0.08)
a. Variable: Cost & Expenses	13.97	per unit
a. Contribution Margin Amount	4.03	per unit
Expected Unit Sales	90,000
a. Increase in Unit Sales	27,000	30%
a. Unit Sales	117,000
a. Contribution Margin Amount	471,510
Total Expected Fxa. Costs & Exp.	500,000
a. Increase[decrease.] in Fixed Factory OH	- 0
a. Increase [decrease.] in Fixed Selling Exp	- 0
a. Increase [decrease.] in Advertising	- 0
a. Increase[decrease.]in Fixed General Exp.	- 0
a. Fixed Costs & Expenses	500,000
a. Profit	(28,490)
Scenario a. better/(worse)
than expected	(63,990)
Sales Manager	Put Sales personnel on all commissions which
b.	reduces fixed salaries by $77,000
and increases variable sales expenses per unit by $1.95
volume would increase by 30%
Selling Price	20.00	per unit
b. Increase [decrease] Unit SP	- 0
b. New unit SP	20.00	per unit
Total: Base:Variable Cost & Expenses	14.05	per unit
b. Increase [decrease] Variable Costs	- 0
b. Increase [decrease] Variable Expenses	1.95
b. Variable: Cost & Expenses	16.00	per unit
b. Contribution Margin Amount	4.00	per unit
Expected Unit Sales	90,000
b. Increase in Unit Sales	27,000	30%	% {'Right' function}
b. Unit Sales	117,000
b. Contribution Margin Amount	468,000
Total Expected Fxb. Costs & Exp.	500,000
b. Increase[decrease.] in Fixed Factory OH	0
b. Increase [decrease.] in Fixed Selling Exp	(77,000)
b. Increase [decrease.] in Advertising	0
b. Increase[decrease.]in Fixed General Exp.	0
b. Fixed Costs & Expenses	423,000
b. Profit	45,000
Scenario b. better/(worse)
than expected	9,500
Production VP	Raise quality resulting in increase direct materials per unit of $1.00
c.	increase in direct labor $0.50
increase fixed factory OH by $40,000
and double advertising →→ can raise price per unit by $2.00
and increase unit sales 35%
Selling Price	20.00	per unit
c. Increase [decrease] Unit SP	2.00	Risk
c. New unit SP	22.00	per unit
Total: Base:Variable Cost & Expenses	14.05	per unit
c. Increase [decrease] Variable Costs	1.50
c. Increase [decrease] Variable Expenses	0.08
c. Variable: Cost & Expenses	15.63	per unit
c. Contribution Margin Amount	6.37	per unit
Expected Unit Sales	90,000
c. Increase in Unit Sales	31,500	35%
c. Unit Sales	121,500
c. Contribution Margin Amount	773,955
Total Expected Fxd. Costs & Exp.	500,000
c. Increase[decrease.] in Fixed Factory OH	40,000
c. Increase [decrease.] in Fixed Selling Exp	- 0	0
c. Increase [decrease.] in Advertising	47,500
c. Increase[decrease.]in Fixed General Exp.	- 0
c. Fixed Costs & Expenses	587,500	Risk
c. Profit	186,455
Scenario c. better/(worse)
than expected	150,955
Controller	double commissions %
d.	triple advertisng
increase unit sales by 40%	40%
Selling Price	20.00	per unit
d. Increase [decreaseease] Unit SP	- 0
d. New unit SP	20.00	per unit
Total: Base:Variable Cost & Expenses	14.05	per unit
d. Increase [decrease] Variable Costs	- 0
d. Increase [decrease] Variable Expenses	0.80
d. Variable: Cost & Expenses	14.85	per unit
d. Contribution Margin Amount	5.15	per unit
Expected Unit Sales	90,000
d. Increase in Unit Sales	36,000	40%	% {'Right' function}
d. Unit Sales	126,000
d. Contribution Margin Amount	648,900
Total Expected Fxd. Costs & Exp.	500,000
d. Increase[decrease.] in Fixed Factory OH	- 0
d. Increase [decrease.] in Fixed Selling Exp	- 0	0
d. Increase [decrease.] in Advertising	95,000
d. Increase[decrease.]in Fixed General Exp.	- 0
d. Fixed Costs & Expenses	595,000
d. Profit	53,900	$ 35,500	Base
Scenario d. better/(worse)
than expected	18,400
Breakeven Chart	Production
Data Section	Units = Sales	Profit/[Loss]
Misc.. General Expense	0	$ (500,000)
Type►	10,000	$ (440,500)
Contribution	20,000	$ (381,000)
Fixed costs	per unit	30,000	$ (321,500)
$ 500,000	$ 5.95	40,000	$ (262,000)
50,000	$ (202,500)
60,000	$ (143,000)
70,000	$ (83,500)
80,000	$ (24,000)
90,000	$ 35,500
100,000	$ 95,000
110,000	$ 154,500
120,000	$ 214,000
ClassCo, Inc	BASE	$ 35,500
Profitability of Various Scenarios	TARGET	$ 200,000
President:	$ (28,490)
Sales Manager	$ 45,000
Production VP	$ 186,455
Controller	$ 53,900
Degree of operating leverage
Target Operating Income	150,000
Target Operating Income %	0.123	150,000/1,222,893
Contribution Margin %	0.593
DOL	4.833	59.29% / 12.27 %
For every 1% decrease in sales 4.8% decrease
in Operating Income
Target sales	1,222,893
Less 1%	1,210,664
X Contrib %	59.3%
New Contrib $s	717,751
Lees Fixed $s	575,000
New Op. Income $s	142,751
Decrease in Op. Inc. $s	7,249
% decrease in OP. Inc.	4.83%

HCT---&P of &N---&D,&T---&F,&A

round,0

Profitability of Student Name Manufacturing with Different Management Actions: $s

Profitability of Various Scenarios

BASE TARGET President: Sales Manager Production VP Controller 35499.999999999884 200000 -28490.000000000058 45000 186454.99999999988 53899.999999999767

Student Name Manufacturing: Breakeven & Profit at Various Unit Volumes

Studentr Manufacturing: Breakeven & Profit at Various Unit Volumes

0 10000 20000 30000 40000 50000 60000 70000 80000 90000 100000 110000 120000 -500000 -440500 -381000 -321500 -262000.00000000003 -202500.00000000006 -143000.00000000006 -83500.000000000058 -24000.000000000058 35499.999999999884 94999.999999999884 154499.99999999988 213999.99999999988

Units Produced & Sold

Profitability of Student Name Manufacturing with Different Management Actions: $s

Profitability of Various Scenarios

BASE TARGET President: Sales Manager Production VP Controller 35499.999999999884 200000 -28490.000000000058 45000 186454.99999999988 53899.999999999767

Student Name Manufacturing: Breakeven & Profit at Various Unit Volumes

Studentr Manufacturing: Breakeven & Profit at Various Unit Volumes

Units Produced & Sold

Profitability of Student Name Manufacturing with Different Management Actions: $s

Profitability of Various Scenarios

BASE TARGET President: Sales Manager Production VP Controller 35499.999999999884 200000 -28490.000000000058 45000 186454.99999999988 53899.999999999767

Student Name Manufacturing: Breakeven & Profit at Various Unit Volumes

Studentr Manufacturing: Breakeven & Profit at Various Unit Volumes

Units Produced & Sold

Profitability of Student Name Manufacturing with Different Management Actions: $s

Profitability of Various Scenarios

BASE TARGET President: Sales Manager Production VP Controller 35499.999999999884 200000 -28490.000000000058 45000 186454.99999999988 53899.999999999767

Student Name Manufacturing: Breakeven & Profit at Various Unit Volumes

Studentr Manufacturing: Breakeven & Profit at Various Unit Volumes

Units Produced & Sold

Profitability of Student Name Manufacturing with Different Management Actions: $s

Profitability of Various Scenarios

BASE TARGET President: Sales Manager Production VP Controller 35499.999999999884 200000 -28490.000000000058 45000 186454.99999999988 53899.999999999767

Student Name Manufacturing: Breakeven & Profit at Various Unit Volumes

Studentr Manufacturing: Breakeven & Profit at Various Unit Volumes

Units Produced & Sold

Profitability of Student Name Manufacturing with Different Management Actions: $s

Profitability of Various Scenarios

BASE TARGET President: Sales Manager Production VP Controller 35499.999999999884 200000 -28490.000000000058 45000 186454.99999999988 53899.999999999767

Student Name Manufacturing: Breakeven & Profit at Various Unit Volumes

Studentr Manufacturing: Breakeven & Profit at Various Unit Volumes

Units Produced & Sold

Profitability of Student Name Manufacturing with Different Management Actions: $s

Profitability of Various Scenarios

BASE TARGET President: Sales Manager Production VP Controller 35499.999999999884 200000 -28490.000000000058 45000 186454.99999999988 53899.999999999767

Student Name Manufacturing: Breakeven & Profit at Various Unit Volumes

Studentr Manufacturing: Breakeven & Profit at Various Unit Volumes

Units Produced & Sold

Profitability of Student Name Manufacturing with Different Management Actions: $s

Profitability of Various Scenarios

BASE TARGET President: Sales Manager Production VP Controller 35499.999999999884 200000 -28490.000000000058 45000 186454.99999999988 53899.999999999767

Student Name Manufacturing: Breakeven & Profit at Various Unit Volumes

Studentr Manufacturing: Breakeven & Profit at Various Unit Volumes

Units Produced & Sold

Profitability of Student Name Manufacturing with Different Management Actions: $s

Profitability of Various Scenarios

BASE TARGET President: Sales Manager Production VP Controller 35499.999999999884 200000 -28490.000000000058 45000 186454.99999999988 53899.999999999767

Student Name Manufacturing: Breakeven & Profit at Various Unit Volumes

Studentr Manufacturing: Breakeven & Profit at Various Unit Volumes

Units Produced & Sold

Profitability of Student Name Manufacturing with Different Management Actions: $s

Profitability of Various Scenarios

BASE TARGET President: Sales Manager Production VP Controller 35499.999999999884 200000 -28490.000000000058 45000 186454.99999999988 53899.999999999767

Student Name Manufacturing: Breakeven & Profit at Various Unit Volumes

Studentr Manufacturing: Breakeven & Profit at Various Unit Volumes

Units Produced & Sold

Profitability of Student Name Manufacturing with Different Management Actions: $s

Profitability of Various Scenarios

BASE TARGET President: Sales Manager Production VP Controller 35499.999999999884 200000 -28490.000000000058 45000 186454.99999999988 53899.999999999767

Student Name Manufacturing: Breakeven & Profit at Various Unit Volumes

Studentr Manufacturing: Breakeven & Profit at Various Unit Volumes

Units Produced & Sold

Profitability of Student Name Manufacturing with Different Management Actions: $s

Profitability of Various Scenarios

BASE TARGET President: Sales Manager Production VP Controller 35499.999999999884 200000 -28490.000000000058 45000 186454.99999999988 53899.999999999767

Student Name Manufacturing: Breakeven & Profit at Various Unit Volumes

Studentr Manufacturing: Breakeven & Profit at Various Unit Volumes

Units Produced & Sold

Profitability of Student Name Manufacturing with Different Management Actions: $s

Profitability of Various Scenarios

BASE TARGET President: Sales Manager Production VP Controller 35499.999999999884 200000 -28490.000000000058 45000 186454.99999999988 53899.999999999767

Student Name Manufacturing: Breakeven & Profit at Various Unit Volumes

Studentr Manufacturing: Breakeven & Profit at Various Unit Volumes

Units Produced & Sold

Profitability of Student Name Manufacturing with Different Management Actions: $s

Profitability of Various Scenarios

BASE TARGET President: Sales Manager Production VP Controller 35499.999999999884 200000 -28490.000000000058 45000 186454.99999999988 53899.999999999767

Student Name Manufacturing: Breakeven & Profit at Various Unit Volumes

Studentr Manufacturing: Breakeven & Profit at Various Unit Volumes

Units Produced & Sold

Profitability of Student Name Manufacturing with Different Management Actions: $s

Profitability of Various Scenarios

BASE TARGET President: Sales Manager Production VP Controller 35499.999999999884 200000 -28490.000000000058 45000 186454.99999999988 53899.999999999767

Student Name Manufacturing: Breakeven & Profit at Various Unit Volumes

Studentr Manufacturing: Breakeven & Profit at Various Unit Volumes

Units Produced & Sold

Profitability of Student Name Manufacturing with Different Management Actions: $s

Profitability of Various Scenarios

BASE TARGET President: Sales Manager Production VP Controller 35499.999999999884 200000 -28490.000000000058 45000 186454.99999999988 53899.999999999767

Student Name Manufacturing: Breakeven & Profit at Various Unit Volumes

Studentr Manufacturing: Breakeven & Profit at Various Unit Volumes

Units Produced & Sold

Profitability of Student Name Manufacturing with Different Management Actions: $s

Profitability of Various Scenarios

BASE TARGET President: Sales Manager Production VP Controller 35499.999999999884 200000 -28490.000000000058 45000 186454.99999999988 53899.999999999767

Student Name Manufacturing: Breakeven & Profit at Various Unit Volumes

Studentr Manufacturing: Breakeven & Profit at Various Unit Volumes

Units Produced & Sold

Profitability of Student Name Manufacturing with Different Management Actions: $s

Profitability of Various Scenarios

BASE TARGET President: Sales Manager Production VP Controller 35499.999999999884 200000 -28490.000000000058 45000 186454.99999999988 53899.999999999767

Student Name Manufacturing: Breakeven & Profit at Various Unit Volumes

Studentr Manufacturing: Breakeven & Profit at Various Unit Volumes

Units Produced & Sold

Profitability of Student Name Manufacturing with Different Management Actions: $s

Profitability of Various Scenarios

BASE TARGET President: Sales Manager Production VP Controller 35499.999999999884 200000 -28490.000000000058 45000 186454.99999999988 53899.999999999767

Student Name Manufacturing: Breakeven & Profit at Various Unit Volumes

Studentr Manufacturing: Breakeven & Profit at Various Unit Volumes

Units Produced & Sold

Profitability of Student Name Manufacturing with Different Management Actions: $s

Profitability of Various Scenarios

BASE TARGET President: Sales Manager Production VP Controller 35499.999999999884 200000 -28490.000000000058 45000 186454.99999999988 53899.999999999767

Student Name Manufacturing: Breakeven & Profit at Various Unit Volumes

Studentr Manufacturing: Breakeven & Profit at Various Unit Volumes

Units Produced & Sold

cell ref.

Profitability of Student Name Manufacturing with Different Management Actions: $s

Profitability of Various Scenarios

BASE TARGET President: Sales Manager Production VP Controller 35499.999999999884 200000 -28490.000000000058 45000 186454.99999999988 53899.999999999767

Student Name Manufacturing: Breakeven & Profit at Various Unit Volumes

Studentr Manufacturing: Breakeven & Profit at Various Unit Volumes

Units Produced & Sold

Profitability of Student Name Manufacturing with Different Management Actions: $s

Profitability of Various Scenarios

BASE TARGET President: Sales Manager Production VP Controller 35499.999999999884 200000 -28490.000000000058 45000 186454.99999999988 53899.999999999767

Student Name Manufacturing: Breakeven & Profit at Various Unit Volumes

Studentr Manufacturing: Breakeven & Profit at Various Unit Volumes

Units Produced & Sold

Profitability of Student Name Manufacturing with Different Management Actions: $s

Profitability of Various Scenarios

BASE TARGET President: Sales Manager Production VP Controller 35499.999999999884 200000 -28490.000000000058 45000 186454.99999999988 53899.999999999767

Student Name Manufacturing: Breakeven & Profit at Various Unit Volumes

Studentr Manufacturing: Breakeven & Profit at Various Unit Volumes

Units Produced & Sold

increase by 10000 using formula

Profitability of Student Name Manufacturing with Different Management Actions: $s

Profitability of Various Scenarios

BASE TARGET President: Sales Manager Production VP Controller 35499.999999999884 200000 -28490.000000000058 45000 186454.99999999988 53899.999999999767

Student Name Manufacturing: Breakeven & Profit at Various Unit Volumes

Studentr Manufacturing: Breakeven & Profit at Various Unit Volumes

Units Produced & Sold

text box ▼

Profitability of Student Name Manufacturing with Different Management Actions: $s

Profitability of Various Scenarios

BASE TARGET President: Sales Manager Production VP Controller 35499.999999999884 200000 -28490.000000000058 45000 186454.99999999988 53899.999999999767

Student Name Manufacturing: Breakeven & Profit at Various Unit Volumes

Studentr Manufacturing: Breakeven & Profit at Various Unit Volumes

Units Produced & Sold

Profitability of Student Name Manufacturing with Different Management Actions: $s

Profitability of Various Scenarios

BASE TARGET President: Sales Manager Production VP Controller 35499.999999999884 200000 -28490.000000000058 45000 186454.99999999988 53899.999999999767

Student Name Manufacturing: Breakeven & Profit at Various Unit Volumes

Studentr Manufacturing: Breakeven & Profit at Various Unit Volumes

Units Produced & Sold

Ch.5 old -2-Var P&L

This is	NOT	GAAP
Manufacturing Company; contribution format
This in Managerial, not Financial Statement
ClassCo, Inc.
Statement of Income for PE: xxxxxxx
$
Sales	10,300
Sale discounts, returns & allowances	300
Net Sales	10,000
CoGS
Direct materials	3,000
Direct Labor	1,000
Variable Overhead	2,000
Variable manufacturing costs	6,000
Gross Margin	4,000
Variable Sales & administration	700
Contribution Margin	3,300
Fixed Costs & Expenses
Fixed Manufacturing Costs	1,700
Fixed Sales & Administrative Costs	1,200
Total Fixed Operating & Manufacturing	2,900
Operating Income	400

HCT---&P of &N---&D,&T---&F,&A

Ch.5old -2- least sq,2 old

A	B	C	D	E	F
A6	Actual	Actual	Modeled	Modeled
A7	Units	$	$	% accuracy	Differnace
A8	1800	10113	11,261	11.4%	1,148	0.7737167625	RSQ
A9	4000	12691	16,639	31.1%	3,948
A10	2100	10905	11,994	10.0%	1,089
A11	2000	12949	11,750	-9.3%	(1,199)
A12	3000	15334	14,194	-7.4%	(1,140)
A13	7000	21455	23,972	11.7%	2,517	2.4444	Slope	B
A14	5000	21270	19,083	-10.3%	(2,187)	$ 6,861	Intercept	A
A15	5000	19930	19,083	-4.2%	(847)
A16	5428	21860	20,129	-7.9%	(1,731)
A17	3000	18383	14,194	-22.8%	(4,189)
A18	2000	9830	11,750	19.5%	1,920
A19	2000	11081	11,750	6.0%	669
X	sum	►►	(0)	4222
mean	3527.3333333333	1727	std deviation
900	14500	13542.8571428571	957.1428571428570000
375	6600	-5642.8571428571	957.1428571429
-525	-7900	15.0476190476

HCT---&P of &N---&D,&T---&F,&A

1800 4000 2100 2000 3000 7000 5000 5000 5428 3000 2000 2000 10113 12691 10905 12949 15334 21455 21270 19930 21860 18383 9830 11081

10113 12691 10905 12949 15334 21455 21270 19930 21860 18383 9830 11081 2310 2453 2641 2874 3540 4861 5432 5268 4628 3720 2106 2495

2310 2453 2641 2874 3540 4861 5432 5268 4628 3720 2106 2495 10932.38833071419 11466.99708102186 12169.839354153622 13040.915150109477 15530.77128790604 20469.359813475501 22604.056291976758 21990.938564351178 19598.284017519643 16203.705379202409 10169.729693911639 11624.01503565768

1800 4000 2100 2000 3000 7000 5000 5000 5428 3000 2000 2000 10113 12691 10905 12949 15334 21455 21270 19930 21860 18383 9830 11081

10113 12691 10905 12949 15334 21455 21270 19930 21860 18383 9830 11081 2310 2453 2641 2874 3540 4861 5432 5268 4628 3720 2106 2495

1800 4000 2100 2000 3000 7000 5000 5000 5428 3000 2000 2000 10113 12691 10905 12949 15334 21455 21270 19930 21860 18383 9830 11081

10113 12691 10905 12949 15334 21455 21270 19930 21860 18383 9830 11081 2310 2453 2641 2874 3540 4861 5432 5268 4628 3720 2106 2495

Actual data

1800 4000 2100 2000 3000 7000 5000 5000 5428 3000 2000 2000 10113 12691 10905 12949 15334 21455 21270 19930 21860 18383 9830 11081

10113 12691 10905 12949 15334 21455 21270 19930 21860 18383 9830 11081 2310 2453 2641 2874 3540 4861 5432 5268 4628 3720 2106 2495

1800 4000 2100 2000 3000 7000 5000 5000 5428 3000 2000 2000 10113 12691 10905 12949 15334 21455 21270 19930 21860 18383 9830 11081

10113 12691 10905 12949 15334 21455 21270 19930 21860 18383 9830 11081 2310 2453 2641 2874 3540 4861 5432 5268 4628 3720 2106 2495

Ch.5 old -2- Hi-Low old

High-Low Method
Data Set # 1	Data Set # 2	Data Set # 3
Units	Total Cost	Units	Total Cost	Units	Total Cost
12,000	$ 120,000	14,000	$ 336,000	26,200	$ 552,000	$ 552,029	0.01%
11,000	$ 100,600	10,800	$ 279,800	19,900	$ 459,000	$ 307,029	-33.11%
9,800	$ 99,000	9,600	$ 277,400	18,500	$ 455,800	$ 689,629	51.30%
7,700	$ 82,000	7,850	$ 230,600	15,000	$ 379,200	$ 379,229	0.01%
10,400	$ 97,500	10,000	$ 271,700	18,700	$ 445,900	$ 288,514	-35.30%
Hi Units	12,000	14,000	26,200
Low Units	7,700	7,850	15,000
Hi $	120,000	336,000	552,000
Low $	82,000	230,600	379,200
∆ $	38,000	105,400	172,800
∆ Units	4,300	6,150	11,200
Var Cost U.	$ 8.84	$ 17.14	$ 15.43
Low	Units x Var. Cost	68,000	134,500	231,400
Fxied costs	14,000	96,100	147,800
Hi		Units x Var. Cost	106,000	239,900	404,200
Fxied costs	14,000	96,100	147,800

hct---&P of &N---&D,&T---&F,&A

Ch.5old -2- least sq.1

Problem 5.5
A	B	C	D	E	F
A6	Actual	Actual	Modeled	Modeled	$
A7	Units	$	$	% accuracy	Difference
A8	2310	10113	10,932	8.1%	819	0
A9	2453	12691	11,467	-9.6%	(1,224)	2578
A10	2641	10905	12,170	11.6%	1,265	792
A11	2874	12949	13,041	0.7%	92	0.916762505	RSQ	2836
A12	3540	15334	15,531	1.3%	197	5221
A13	4861	21455	20,469	-4.6%	(986)	3.7385	Slope	B	11342
A14	5432	21270	22,604	6.3%	1,334	$ 2,296	Intercept	A	11157
A15	5268	19930	21,991	10.3%	2,061	9817
A16	4628	21860	19,598	-10.3%	(2,262)	11747
A17	3720	18383	16,204	-11.9%	(2,179)	8270
A18	2106	9830	10,170	3.5%	340	-283
A19	2495	11081	11,624	4.9%	543	968
X	sum	►►	(0)	4595
42328	mean	3527.3333333333	1229	std deviation
Hi-low vs. least squares
Qty:	$s
2106	$ 9,830
5432	$ 21,860
Change	3326	$ 12,030
Varaible per uniot	3.62
Fixed	$ 2,213	$ 2,213
Qty	Hi-low	Least Sq's	Diff.$s
2310	$ 10,568	10,932	$ (365)
2453	$ 11,085	11,467	$ (382)
2641	$ 11,765	12,170	$ (405)
2874	$ 12,608	13,041	$ (433)
3540	$ 15,017	15,531	$ (514)
4861	$ 19,795	20,469	$ (675)
5432	$ 21,860	22,604	$ (744)
5268	$ 21,267	21,991	$ (724)
4628	$ 18,952	19,598	$ (646)
3720	$ 15,668	16,204	$ (536)
2106	$ 9,830	10,170	$ (340)
2495	$ 11,237	11,624	$ (387)
$ 179,651	$ 185,801	$ (6,150)
Average difference per period	3.4%

HCT---&P of &N---&D,&T---&F,&A

2310 2453 2641 2874 3540 4861 5432 5268 4628 3720 2106 2495 10113 12691 10905 12949 15334 21455 21270 19930 21860 18383 9830 11081

10113 12691 10905 12949 15334 21455 21270 19930 21860 18383 9830 11081 2310 2453 2641 2874 3540 4861 5432 5268 4628 3720 2106 2495

y = 274.38x + 13700

2310 2453 2641 2874 3540 4861 5432 5268 4628 3720 2106 2495 10113 12691 10905 12949 15334 21455 21270 19930 21860 18383 9830 11081

10113 12691 10905 12949 15334 21455 21270 19930 21860 18383 9830 11081 2310 2453 2641 2874 3540 4861 5432 5268 4628 3720 2106 2495

y = 274.38x + 13700

2310 2453 2641 2874 3540 4861 5432 5268 4628 3720 2106 2495 10113 12691 10905 12949 15334 21455 21270 19930 21860 18383 9830 11081

10113 12691 10905 12949 15334 21455 21270 19930 21860 18383 9830 11081 2310 2453 2641 2874 3540 4861 5432 5268 4628 3720 2106 2495

y = 274.38x + 13700

Actual data

2310 2453 2641 2874 3540 4861 5432 5268 4628 3720 2106 2495 10113 12691 10905 12949 15334 21455 21270 19930 21860 18383 9830 11081

10113 12691 10905 12949 15334 21455 21270 19930 21860 18383 9830 11081 2310 2453 2641 2874 3540 4861 5432 5268 4628 3720 2106 2495

y = 274.38x + 13700

2310 2453 2641 2874 3540 4861 5432 5268 4628 3720 2106 2495 10113 12691 10905 12949 15334 21455 21270 19930 21860 18383 9830 11081

10113 12691 10905 12949 15334 21455 21270 19930 21860 18383 9830 11081 2310 2453 2641 2874 3540 4861 5432 5268 4628 3720 2106 2495

y = 274.38x + 13700

2310 2453 2641 2874 3540 4861 5432 5268 4628 3720 2106 2495 10113 12691 10905 12949 15334 21455 21270 19930 21860 18383 9830 11081

10113 12691 10905 12949 15334 21455 21270 19930 21860 18383 9830 11081 2310 2453 2641 2874 3540 4861 5432 5268 4628 3720 2106 2495

y = 274.38x + 13700

Conversion Costs Transferred OUT:

Weighted Average:

Beginnig Costs

5,575

Period Costs

350,900

Total

356,475

Equivalent units

4,900

per Equivalent Unit

72.75

Completed: To next Department or FG

4,800

349,200

Ending in Department

400 = 100 Eq.units

7,275

356,475

Data Set:

Support DepartmentsOperating Departments

MaintenanceIT SupportMachiningAssemblyTotal:

abFunctional Spending $s600,000$ 116,000$ 400,000$ 200,000$ 1,316,000$

acUnits: Hours1,600 2,400 4,000 8,000

ad%20.0%30.0%50.0%100.0%

Without support functions37.5%62.5%

aeComputer Hours20016002002,000

af%10.0%80.0%10.0%100.0%

Without support functions88.9%11.1%

Data Set:

Direct Method of Overhead Allocation

Allocate from Support direct to operating

agTotal Operating depts. Hours6,400 ac operating depts.

ahsupport cost-rate per hour

Maintenance

93.75$ + 'ab' Maint. / 'ac' opera. hours

aisupport cost-rate per hourAssembly64.44 + 'ab' IT. / 'ac' opera. hours

Allocated support costs

Maintenance

IT Support

ajMachining225,000 103,111 + ac opera * ah , ai

akAssembly375,000 12,889 + ac mach * ah , ai

alTotal600,000 116,000

Direct Fixed OH costs

Direct

AllocatedTotalRate

az+ab + ajMachining400,000 328,111 728,111 303.38$

ax+ab + akAssembly200,000 387,889 587,889 146.97$

aw+ az + axTotal600,000 716,000 1,316,000

Sheet1

Racing Bicycle Company
Contribution Income Statement
For the Month of June
Sales (500 bicycles)	$ 250,000
Less: Variable expenses	150,000
Contribution margin	100,000
Less: Fixed expenses	80,000
Net operating income	$ 20,000

Sheet2

Sheet3

Sales (500 bicycles)250,000$

Less: Variable expenses150,000

Contribution margin100,000

Less: Fixed expenses80,000

Net operating income20,000$

Racing Bicycle Company

Contribution Income Statement

For the Month of June

Sheet1



	Income 300 units	Income 400 units	Income 500 units
Sales	$ 150,000	$ 200,000	$ 250,000
Less: variable expenses	90,000	120,000	150,000
Contribution margin	$ 60,000	$ 80,000	$ 100,000
Less: fixed expenses	80,000	80,000	80,000
Net operating income	$ (20,000)	$ - 0	$ 20,000

Page &P

Income

300 units

Income

400 units

Income

500 units

Sales150,000$ 200,000$ 250,000$

Less: variable expenses90,000 120,000 150,000

Contribution margin60,000$ 80,000$ 100,000$

Less: fixed expenses80,000 80,000 80,000

Net operating income(20,000)$ -$ 20,000$

Sheet1



	Income 300 units	Income 400 units	Income 500 units
Sales	$ 150,000	$ 200,000	$ 250,000
Less: variable expenses	90,000	120,000	150,000
Contribution margin	$ 60,000	$ 80,000	$ 100,000
Less: fixed expenses	80,000	80,000	80,000
Net operating income	$ (20,000)	$ - 0	$ 20,000

Page &P

Sheet1






		SureStarts [A]	LongLifes [B]	Total
Sales		$ 31,300,000	$ 18,700,000	$ 50,000,000
Direct costs
	Direct material	9,000,000	6,000,000	15,000,000
	Direct labor	7,000,000	5,000,000	12,000,000
	Shipping	2,000,000	1,000,000	3,000,000

Sheet2

Sheet3

SureStarts [A]LongLifes [B]Total

Sales31,300,000$ 18,700,000$ 50,000,000$

Direct costs

Direct material9,000,000 6,000,000 15,000,000

Direct labor7,000,000 5,000,000 12,000,000

Shipping2,000,000 1,000,000 3,000,000

Product A: SureStart1.Requires no new design resources.2.800,000 batteries ordered with 4,000 separate orders.

3.Each SureStartrequires 36 minutes of machine

time for a total of 480,000 machine-hours. [480K x $6.50 = $3120K]

Product B: LongLife1.Requires new design resources.2.400,000 batteries ordered with 6,000 separate orders.3.4,000 custom designs prepared.

4.Each LongLiferequires 48minutes of machine

time for a total of 320,000 machine-hours.[320K x $6.50 = $2080K]

The ABC team determined that Baxter Battery will have these total activities for each activity cost pool . . .

10,000 customer orders,

4,000 design changes,

800,000 machine-hours,2,000 customers served.

Given data



Given data



Sheet1






		Cost	$ 3,170
		Life	4 years
		Salvage value	zero
		Increase in annual cash inflows	1,000

Sheet2

Sheet3

Cost $3,170

Life4 years

Salvage valuezero

Increase in annual cash inflows 1,000

Sheet1




	Cost and revenue information
	Cost of special equipment						$ 160,000
	Working capital required						100,000
	Relining equipment in 3 years						30,000
	Salvage value of equipment in 5 years						5,000
	Annual cash revenue and costs:
	Sales revenue from parts						803,300
	Cost of parts sold						400,000
	Salaries, shipping, etc.						270,000

Page &P

Cost and revenue information

Cost of special equipment $160,000

Working capital required100,000

Relining equipment in 3 years30,000

Salvage value of equipment in 5 years5,000

Annual cash revenue and costs:

Sales revenue from parts803,300

Cost of parts sold400,000

Salaries, shipping, etc.270,000

Sheet1




	Cash flow information
	Cost of computer equipment						$ 250,000
	Working capital required						20,000
	Upgrading of equipment in 2 years						90,000
	Salvage value of equipment in 4 years						10,000
	Annual net cash inflow						120,000

Page &P

Cash flow information

Cost of computer equipment $ 250,000

Working capital required20,000

Upgrading of equipment in 2 years90,000

Salvage value of equipment in 4 years10,000

Annual net cash inflow120,000

Sheet1




Install the New Washer
	Year	Cash Flows	10% Factor	Present Value
Initial investment	Now	$ (300,000)	1.000	$ (300,000)
Replace brushes	6	(50,000)	0.564	(28,200)
Net annual cash inflows	1-10	60,000	6.145	368,700
Salvage of old equipment	Now	40,000	1.000	40,000
Salvage of new equipment	10	7,000	0.386	2,702
Net present value				$ 83,202

Page &P

Install the New Washer

Year

Cash

Flows

10%

Factor

Present

Value

Initial investmentNow(300,000)$ 1.000 (300,000)$

Replace brushes6 (50,000) 0.564 (28,200)

Net annual cash inflows1-1060,000 6.145 368,700

Salvage of old equipmentNow40,000 1.000 40,000

Salvage of new equipment10 7,000 0.386 2,702

Net present value83,202$

Sheet1






		Cost of equipment	$ 300,000
		Working capital needed	$ 75,000
		Estimated annual cash receipts from ore sales	$ 300,000
		Estimated annual cash expenses for mining ore	$ 170,000
		Cost of road repairs needed in 6 years	$ 40,000
		Salvage value of the equipment in 10 years	$ 100,000
		After-tax cost of capital	12%
		Tax rate	30%

Sheet2

Sheet3

Cost of equipment $ 300,000

Working capital needed $ 75,000

Estimated annual cash

receipts from ore sales

$ 300,000

Estimated annual cash

expenses for mining ore

$ 170,000

Cost of road repairs

needed in 6 years

$ 40,000

Salvage value of the

equipment in 10 years

$ 100,000

After-tax cost of capital

12%

Tax rate 30%

12345$1,000$0$2200$1800$1500

When the cash flows associated with an investment project change from year to year, the payback formula introduced earlier cannot be used.

Instead, the un-recovered investment must be

tracked year by year.

DeductMethod

TAX RATE

CONSIDERS

DEDUCTION OF

DEPRECIATION

EXPENSE

NOT COVERED

THIS CHAPTER

2xx0

Base

2xx52xx42xx12xx22xx3

Sheet1



Contribution Margin
Solution
Contribution margin lost if digital watches are dropped		$ (300,000)
Less fixed costs that can be avoided
Salary of the line manager	$ 90,000
Advertising - direct	100,000
Rent - factory space	70,000	260,000
Net disadvantage		$ (40,000)

Less: fixed expenses
General factory overhead	$ 60,000
Salary of line manager	90,000
Depreciation of equipment	50,000
Advertising - direct	100,000
Rent - factory space	70,000
General admin. expenses	30,000	400,000
Net loss		$ (440,000)

Page &P

Contribution Margin

Solution

Contribution margin lost if digital

watches are dropped(300,000)$

Less fixed costs that can be avoided

Salary of the line manager90,000$

Advertising - direct100,000

Rent - factory space70,000 260,000

Net disadvantage

(40,000)$

Segment Income Statement

Digital Watches

Sales500,000$

Less: variable expenses

Variable manufacturing costs120,000$

Variable shipping costs5,000

Commissions75,000 200,000

Contribution margin300,000$

Less: fixed expenses

General factory overhead60,000$

Salary of line manager90,000

Depreciation of equipment50,000

Advertising - direct100,000

Rent - factory space70,000

General admin. expenses30,000 400,000

Net operating loss

(100,000)$

Sheet1




	Cash flow information
	Cost of computer equipment						$ 250,000
	Working capital required						20,000
	Upgrading of equipment in 2 years						90,000
	Salvage value of equipment in 4 years						10,000
	Annual net cash inflow						120,000

Page &P

Sheet1




Install the New Washer
	Year	Cash Flows	10% Factor	Present Value
Initial investment	Now	$ (300,000)	1.000	$ (300,000)
Replace brushes	6	(50,000)	0.564	(28,200)
Net annual cash inflows	1-10	60,000	6.145	368,700
Salvage of old equipment	Now	40,000	1.000	40,000
Salvage of new equipment	10	7,000	0.386	2,702
Net present value				$ 83,202

Page &P

Sheet1




	Cost and revenue information
	Cost of special equipment						$ 160,000
	Working capital required						100,000
	Relining equipment in 3 years						30,000
	Salvage value of equipment in 5 years						5,000
	Annual cash revenue and costs:
	Sales revenue from parts						750,000
	Cost of parts sold						400,000
	Salaries, shipping, etc.						270,000

Page &P

Cost and revenue information

Cost of special equipment $160,000

Working capital required100,000

Relining equipment in 3 years30,000

Salvage value of equipment in 5 years5,000

Annual cash revenue and costs:

Sales revenue from parts750,000

Cost of parts sold400,000

Salaries, shipping, etc.270,000

Sheet1


	Year
Item	2007	2006	2005	2004	2003
Sales	$ 400,000	$ 355,000	$ 320,000	$ 290,000	$ 275,000
Cost of goods sold	285,000	250,000	225,000	198,000	190,000
Gross margin	115,000	105,000	95,000	92,000	85,000

Page &P

Year

Item20072006200520042003

Sales400,000$ 355,000$ 320,000$ 290,000$ 275,000$

Cost of goods sold285,000 250,000 225,000 198,000 190,000

Gross margin115,000 105,000 95,000 92,000 85,000

Sheet1


	Year
Item	2007	2006	2005	2004	2003
Sales	145%	129%	116%	105%	100%
Cost of goods sold	150%	132%	118%	104%	100%
Gross margin	135%	124%	112%	108%	100%

Page &P

Year

Item20072006200520042003

Sales145%129%116%105%100%

Cost of goods sold150%132%118%104%100%

Gross margin135%124%112%108%100%

Schedule

NORTON CORPORATION
2007
Number of common shares outstanding		17,000
Beginning of year	17,000
End of year	27,400
Net income	$ 53,690	$ 57,500
Stockholders' equity
Beginning of year	180,000	216,000
End of year	234,390	220,000
Dividends per share	2	8
Dec. 31 market price per share	20
Interest expense	7,300
Total assets
Beginning of year	300,000
End of year	346,390

Page &P

NORTON CORPORATION

2007

Number of common shares

outstanding

Beginning of year17,000

End of year27,400

Net income53,690$

Stockholders' equity

Beginning of year180,000

End of year234,390

Dividends per share2

Dec. 31 market price per share20

Interest expense7,300

Total assets

Beginning of year300,000

End of year346,390

ABCDEFGHIJKLMN0

Excel 2

Improve from 89% to 93%

Time & motion

EngineeredBudget

Number

Ea.subass'y

Table

Process [Router]LaborStd. timeAllow100%

Prior

Period

of minutes

Labor Hr.LaborLabor

For simplicity 1-step assembly - may be many steps

per ass'y

Time Std.

Period

Prod.%Std.Std.Std.Std.

Qty per

UMQtyPFDTime

Productivity

for Std.MinutesPriceCost ea.Cost ea.

4LL2Leg assemblies

Minutes

6.012%6.818289%93%

7.331

12.00$ 1.466$ 5.865$ 4per table

AA2Top Assembly

Minutes

11.512%13.06892%94%13.902314.75$ 3.418$ 3.418$ 1per table

Can

6.0

89%Use+G45/(1-H45)Total9.283$ Cost

This6 / (1 - 12%)

Variable OH

4LL27.33129.326

1AA2

13.902

VOH rate/dl.hr.

Minutes43.228

6.667$

4.803$

VOH per

X33

Given in example

Projects

Accounting Project
Basic Accounting
1	History of company [ no cut & paste; 1 page maximum]
2	Biography of CEO
3	Biography of CFO
4	Product listing [1 page maximum]
5	Sales by geographic area
6	Sales by Segment
7	Company Code of Ethics [1 page maximum]
8	Six recent news stories [ No cut & paste] summarized into a paragrapht each
9	Most current: Statements of Income 2 years
10	Most current: Statement of Stockholders' Equity or Retained Earnings
11	Most current: Statement of Cash Flows
12	Most current: Balance Sheet - 2 years
13	Statement of Comprehensive Income
14	Vertical analysis of Income statement
15	Horizontal analysis of Balance Sheet
16	Ratios:
15a	Net Income %	15e	Inventory turnover
15b	Working Capital $	15f	Return on Total Assets
15c	Current ratio	15g	Book Value per share
15d	Accts. Receivable Turns	15h	Debt to equity ratio
17	Market Analysts summary of Company
18	Evaluatative statement: Good/ Bad inveatment & why
Cover Page for Project:
Course Name:
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Companies Sp2017

Fortune 500, June 2016	Revenue
Financial	Rank	Company	$millions	G	K
Financial	93	3M	$30,274
Financial	46	Aetna	$60,337
X	49	AIG	$58,327
X	81	Allstate	$35,653
X	36	Alphabet	$74,989
X	18	Amazon.com	$107,006
X	67	American Airlines Group	$40,990
X	85	American Express	$34,441
X	12	AmerisourceBergen	$135,962
X	33	Anthem	$79,157
X	3	Apple	$233,715
X	41	Archer Daniels Midland	$67,702
X	10	AT&T	$146,801
X	26	Bank of America Corp.	$93,056
X	4	Berkshire Hathaway	$210,821
X	71	Best Buy	$39,745
X	24	Boeing	$96,114
X	21	Cardinal Health	$102,531
X	59	Caterpillar	$47,011
X	14	Chevron	$131,118
X	84	CHS	$34,582
X	79	Cigna	$37,876
X	54	Cisco Systems	$49,161
X	29	Citigroup	$88,275
X	62	Coca-Cola	$44,294
X	37	Comcast	$74,510
X	90	ConocoPhillips	$30,935
X	15	Costco	$116,199
X	7	CVS Health	$153,290
X	97	Deere	$28,863
X	68	Delta Air Lines	$40,704
X	53	Disney	$52,465
X	56	Dow Chemical	$48,778
X	101	DuPont	$27,940
X	65	Energy Transfer Equity	$42,126
X	95	Exelon	$29,447
X	22	Express Scripts Holding	$101,752
X	2	Exxon Mobil	$246,204
X	16	Fannie Mae	$110,359
X	58	FedEx	$47,453
X	9	Ford Motor	$149,558
X	43	Freddie Mac	$63,491
X	88	General Dynamics	$31,469
X	11	General Electric	$140,389
X	8	General Motors	$152,356
X	86	Gilead Sciences	$32,639
X	74	Goldman Sachs Group	$39,208
X	63	HCA Holdings	$43,591
X	28	Home Depot	$88,519
X	75	Honeywell International	$38,581
X	20	HP	$103,355
X	52	Humana	$54,289
X	31	IBM	$82,461
X	64	Ingram Micro	$43,026
X	51	Intel	$55,355
X	83	INTL FCStone	$34,693
X	23	J.P. Morgan Chase	$101,006
X	39	Johnson & Johnson	$70,074
X	70	Johnson Controls	$40,204
X	17	Kroger	$109,830
X	73	Liberty Mutual Insurance Group	$39,450
X	60	Lockheed Martin	$46,132
X	47	Lowe’s	$59,074
X	42	Marathon Petroleum	$64,566
X	76	Massachusetts Mutual Life Insurance	$38,243
X	5	McKesson	$181,241
X	72	Merck	$39,498
X	40	MetLife	$69,951
X	25	Microsoft	$93,580
X	94	Mondelez International	$29,636
X	78	Morgan Stanley	$37,897
X	69	Nationwide	$40,222
X	61	New York Life Insurance	$45,891
X	91	Nike	$30,601	DEY
X	100	Northwestern Mutual	$28,111
X	100	Northwestern Mutual	$28,111
X	77	Oracle	$38,226
X	44	PepsiCo	$63,056
X	55	Pfizer	$48,851
X	30	Phillips 66	$87,169
X	34	Procter & Gamble	$78,756
X	50	Prudential Financial	$57,119
X	87	Publix Super Markets	$32,619
X	35	State Farm Insurance Cos.	$75,697
X	57	Sysco	$48,681
X	38	Target	$73,785
X	98	Tesoro	$28,150
X	82	TIAA	$35,181
X	99	Time Warner	$28,118
X	89	TJX	$30,945
X	96	Twenty-First Century Fox	$28,987
X	66	Tyson Foods	$41,373
X	80	United Continental Holdings	$37,864
X	45	United Technologies	$61,047
X	6	UnitedHealth Group	$157,107
X	48	UPS	$58,363
X	32	Valero Energy	$81,824
X	13	Verizon	$131,620
X	19	Walgreens Boots Alliance	$103,444
A	1	Walmart	$482,130
X	27	Wells Fargo	$90,033
X	92	World Fuel Services	$30,380

Ch.2 #1

Types of Costs & Expenses	Excel 1
Natural Cost or Expense	Expense by the type of spending
Functional cost or Expense	Expense by function, department or organizational heirarchy
Fixed or Variable Cost or Expense	Varies with sales or production volume or does not
Product or Period Cost or Expense	Part of product cost [CoGS / Inventoriable] or not
Direct or Indirect Cost or Expense	Direct: tracable to a cost object [such as a product or capital project]; Indirect: not tracable may be assignable
Conversion costs	Direct labor & manufacturing overhead [sometimes only variable OH]
Prime costs	Direct materials & direct labor [sometimes varaible fringes on DL]
Common cost	Cost on support to a group of cost objects but not tracable
Tracable costs	Cost directly tracable to cost object
Natural Expenses	Department or Function
operating	operating	CoGS	distribution
Sales	Admin	Production	Warehouse	Totals:
Salary Expense	25,000	17,000	36,000	9,000	87,000
Wage Expense	16,000	9,000	58,000	12,500	95,500
Production Direct labor	- 0	- 0	115,000	- 0	115,000
Fringe benefit expense	13,000	8,800	74,000	6,400	102,200
Commission expense	7,000	- 0	- 0	- 0	7,000
Advertising expense	9,500	400	750	200	10,850
Building rent expense	3,200	3,600	12,500	4,800	24,100
Equipment lease expense	400	2,300	6,900	2,230	11,830
Office supply expense	1,900	1,400	2,300	600	6,200
Contract labor Expense	- 0	- 0	34,000	3,320	37,320
Travel/entertainment exp.	3,600	450	2,000	300	6,350
Professional services	1,900	2,150	3,200	- 0	7,250
Bank charges/fees	- 0	200	- 0	- 0	200
Depreciation expense	2,200	1,975	44,000	11,000	59,175
Miscellaneous expense	1,400	1,100	3,950	2,160	8,610
Total	85,100	48,375	392,600	52,510	578,585
Sales	Admin	Production	Warehouse
Job
Job AB1	Job AB2	Job AB3	Totals
Salary Expense	12,000	3,000	- 0	15,000
Wage Expense	2,300	6,200	- 0	8,500
Production Direct labor	21,000	23,000	66,000	110,000
Fringe benefit expense	6,500	9,100	2,200	17,800
Commission expense	2,500	- 0	1,300	3,800
Advertising expense	- 0	- 0	- 0	- 0
Building rent expense	- 0	- 0	- 0	- 0
Equipment lease expense	- 0	- 0	2,150	2,150
Office supply expense	- 0	- 0	- 0	- 0
Contract labor Expense	1,500	2,650	11,500	15,650
Travel/entertainment exp.	250	350	600	1,200
Professional services	1,110	850	1,950	3,910
Bank charges/fees	- 0	- 0	- 0	- 0
Depreciation expense	- 0	- 0	- 0	- 0
Miscellaneous expense	875	625	325	1,825
Totals:	48,035	45,775	86,025	179,835
Credit
Accounts Payable
0
0
0
Product cost flows
Manufacturing company	Raw materials	WIP	FG	CoGS
Beginning Raw materials +	100,000
Buy materials +	20,000
Available for use Raw materials =	120,000
Ending Raw materials -	55,000
RM used for Production =	65,000
Beginning WIP +	77,000
Issued to WIP from Raw material inventory +	Direct cost	65,000
Direct labor +	Direct cost	21,000	Conversion cost
Applied overhead [Indirect costs] +	42,000	Conversion cost
Total Manufacturing costs; WIP for Period =	205,000
Ending WIP Inventory -	64,000
COG manufactured; [sent to FG] =	141,000
Beginning FG +	214,000
To FG from WIP; CoG Manufactured +	141,000
CoG Available for Sale =	355,000
Ending FG inventory -	191,000
CoGS =	164,000
Summary	Beginning	Additions	Ending
RW	100,000	20,000	55,000
WIP	77,000	21,000	64,000
FG	214,000	42,000	191,000
391,000	83,000	310,000	164,000
'+'	'+'	'-'	'='

Ch.2A

Income statements: Chapter 2	Excel 2	Excel 1
CoGS = Product cost // GAAP	Product cost flows
Month: July	Var. Income Statement	Comment	Manufacturing company	Raw materials	WIP	FG	CoGS
Data set:	Manufacturing business	GAAP	Variable	Fixed	Beginning Raw materials +	100,000
A	Sold	900	units	sell price each:	$ 110.00	Sales	Sales	Materials	Buy materials +	20,000
B	Purchased Materials Cost each	$ 62.00	CoGS	CoGS	Available for use Raw materials =	120,000
C	sales rent per month	$ 3,000.00	Sell.Exp	Sell.Exp	Ending Raw materials -	55,000
D	Insurance costs month:	$ 1,200.00	Admin.Exp	Admin.Exp	RW used for Production =	65,000
E	Sales salaries exp:	$ 4,000.00	Commission on sales	4.50%	Sell.Exp	Sell.Exp	Sell.Exp	Y=4000+4.5%Xsales
G	Admin salary expense	$ 2,800.00	Admin.Exp	Admin.Exp	Beginning WIP +	77,000
H	Purchase new servers	$ 11,000.00	N/A	N/A	N/A	N/A	Capital expenditure	Issued to WIP from Raw material inventory +	65,000
I	Advertising expense	$ 950.00	Sell.Exp	Sell.Exp	Direct labor +	21,000
J	Product brochures attached to each sold item	$ 1.75	each	CoGS	CoGS	Applied overhead [Indirect costs] +	42,000
K	Communication expense	$ 2,450.00	Admin.Exp	Admin.Exp	Total Manufacturing costs;WIP for Period =	205,000
L	Depreciation expense: Sales Office	$ 1,900.00	Sell.Exp	Sell.Exp	Ending WIP Inventory -	64,000
M	Depreciation expense: general & admin	$ 1,800.00	Admin.Exp	Admin.Exp	COG manufactured; [sent to FG] =	141,000
N	Shipping Warehousing rent	$ 1,050.00	Sell.Exp	Sell.Exp
O	Factory direct labor	$ 2,650.00	Labor	Labor	Direct Labor	Beginning FG +	214,000
P	Component warehouse	$ 1,175.00	CoGS	CoGS	Mfg. overhead	To FG from WIP; CoG Manufactured +	141,000
Q	Factory Mamagement	$ 2,290.00	CoGS	CoGS	Mfg. overhead	CoG Available for Sale =	355,000
R	Fringe benefits for direct labor	$ 800.00	CoGS	CoGS	Mfg. overhead	Ending FG inventory -	191,000
S	Fringe benefits for Admin.	$ 200.00	Admin.Exp	Admin.Exp
T	Process utilitiy cost	$ 400.00	CoGS	CoGS	Mfg. overhead	CoGS =	164,000
U	Solder & solvents	$ 200.00	CoGS	CoGS	Mfg. overhead
V	Derperciation factory Bldg. & eqpmnt.	$ 1,860.00	CoGS	CoGS	Summary	Beginning	Additions	Ending
W	Variable Administrative expenses	1%	of sales $s	RW	100,000	20,000	55,000
WIP	77,000	21,000	64,000
Month: July	Var. Income Statement	Comment	FG	214,000	42,000	191,000
Data set:	Manufacturing business	Product	Period	Fixed	Variable	391,000	83,000	310,000	164,000
A	Sold	900	units	sell price each:	$ 110.00	Revenue	$ 99,000	'+'	'+'	'-'	'='
B	Purchased Materials Cost each	$ 62.00	$ 55,800	$ 55,800	x
C	sales rent per month	$ 3,000.00	$ 3,000	$ 3,000
D	Insurance costs month:	$ 1,200.00	$ 1,200	$ 1,200
E	Sales salaries exp:	$ 4,000.00	+ Commission on sales	4.50%	$ 8,455	$ 4,000	$ 4,455	s
G	Admin salary expense	$ 2,800.00	$ 2,800	$ 2,800
H	Purchase new servers	$ 11,000.00	N/A	N/A	N/A	N/A	Capital expenditure
I	Advertising expense	$ 950.00	$ 950	$ 950
J	Product brochures attached to each sold item	$ 1.75	each	$ 1,575	$ 1,575	x
K	Communication expense	$ 2,450.00	$ 2,450	$ 2,450
L	Depreciation expense: Sales Office	$ 1,900.00	$ 1,900	$ 1,900
M	Depreciation expense: general & admin	$ 1,800.00	$ 1,800	$ 1,800
N	Shipping Warehousing rent	$ 1,050.00	$ 1,050	$ 1,050
O	Factory direct labor	$ 2,650.00	$ 2,650	$ 2,650	x
P	Component warehouse	$ 1,175.00	$ 1,175	$ 1,175
Q	Factory Mamagement	$ 2,290.00	$ 2,290	$ 2,290
R	Fringe benefits for direct labor	$ 800.00	$ 800	$ 800	x
S	Fringe benefits for Admin.	$ 200.00	$ 200	$ 200
T	Process utilitiy cost	$ 400.00	$ 400	$ 400	x
U	Solder & solvents	$ 200.00	$ 200	$ 200	x
V	Derperciation factory Bldg. & eqpmnt.	$ 1,860.00	$ 1,860	$ 1,860
W	Variable Administrative expenses	1%	of sales $s	$ 990	$ 990	s
Totalsè	$ 66,750	$ 24,795	$ 24,675	$ 66,870	←Totals
No change in FG/WIP inventory	Contribution format
GAAP	Managerial Accounting	Variable
Sales	$ 99,000	Sales	$ 99,000
Cost of Goods Sold	$ 66,750	Variable Costs & Expenses
Gross Margin [Gross Profit]	$ 32,250	Cost of Goods Sold	$ 61,425	x	$ 55,800	$ 61,425	$ 61,425
Variable Selling Expenses	$ 4,455	$ 1,575	$ 5,445
Selling & Administrative Expense	Variable Admin. Expenses	$ 990	$ 2,650	$ 66,870
Selling Expense	$ 15,355	Total Var. Costs & Expenses	$ 66,870	$ - 0
Administrative Expense	$ 9,440	Contribution Margin	$ 32,130	32.5%	$ - 0
Total Sales & Administrative Expense	$ 24,795	$ 800
Fixed Expenses	$ - 0
Net Operating Income	$ 7,455	Manufacturing	$ 5,325	$ 400
Selling Expense	$ 10,900	$ 200
Administrative Expense	$ 8,450
Total Sales & Admin. Expense	$ 24,675
Net Operating Income	$ 7,455	0
check
Income is the same without consideration of ending inventory changes
IF ending WIP nd/or FG changes then GAAP is NOT equal to Variable format

ACC220--Ch.2--HCT--&P of &N---&D,&T---&Z&F,&A

Ch.2B

Chapter 2 Hi-Low
Hi-Lo Method	for	Y = a + bX	Excel 3
Compute "b" first then compute "a"
A	B	C	Modeled Y
A6	Actual = X	Actual = Y	using hi - low	Excel Min = low
A7	Units	$	Excel Max = hi	Divide ∆ $s by
A8	2310	$ 10,113	$ 10,568
A9	2453	$ 12,691	$ 11,085	Difference:Min [Lo] - Max {Hi]
A10	2641	$ 10,905	$ 11,765	∆ Units	∆$s
A11	2874	$ 12,949	$ 12,608	3326	$ 12,030	∆ $ & ∆ units
A12	3540	$ 15,334	$ 15,017
A13	4861	$ 21,455	$ 19,795	Imputed variable per unit	∆ $ / ∆ units = b
A14	5432	$ 21,270	$ 21,860	$ 3.617	= b the variable cost per unit
A15	5268	$ 19,930	$ 21,267
A16	4628	$ 21,860	$ 18,952	Formula	Hi	Low
A17	3720	$ 18,383	$ 15,668	Y = 3.617X + 2212.598	Spent	$ 21,860	$ 9,830
A18	2106	$ 9,830	$ 9,830	bX	$ 19,648	$ 7,617
A19	2495	$ 11,081	$ 11,237	after you have computed "b" then compute "a'	$ 2,212	$ 2,213
x = Qty	Varible-bX
Min	2106	$ 9,830	Hi	$ 7,617.40	$ 2,212.60	fixed	= a
Max	5432	$ 21,860	Low	$ 19,647.54	$ 2,212.46	fixed	= a
Regression	Regression Method for	Y = a + bX	Excel 4
The RSQ(array1, array2) function returns the Square of the Pearson Product-Moment Correlation Coefficient between two arrays of data.
A	B	C	D	E	F
A6	Actual	Actual	Modeled	Modeled	$
A7	Units	$	$	% accuracy	Difference
A8	2310	$ 10,113	$ 10,932	8.1%	819
A9	2453	$ 12,691	$ 11,467	-9.6%	(1,224)
A10	2641	$ 10,905	$ 12,170	11.6%	1,265	Can use excel wizard for help with formula
A11	2874	$ 12,949	$ 13,041	0.7%	92	0.916762505	RSQ	RSQ = Parson squared, Excel = "+ RSQ"
A12	3540	$ 15,334	$ 15,531	1.3%	197
A13	4861	$ 21,455	$ 20,469	-4.6%	(986)	3.7385	Slope	= b	Excel "+ slope"	for computations by "hand" see cell A65
A14	5432	$ 21,270	$ 22,604	6.3%	1,334	$ 2,296	Intercept	= a	Excel "+ intercept"	for computations by "hand" see cell A91
A15	5268	$ 19,930	$ 21,991	10.3%	2,061
A16	4628	$ 21,860	$ 19,598	-10.3%	(2,262)	=+SLOPE(C29:C40,B29:B40)
A17	3720	$ 18,383	$ 16,204	-11.9%	(2,179)	=+INTERCEPT(C29:C40,B29:B40)
A18	2106	$ 9,830	$ 10,170	3.5%	340	std deviation	std deviation
A19	2495	$ 11,081	$ 11,624	4.9%	543	4799	Y
X	Y	sum►►	(0)	4595	Model	0.9574771564	Pearson	=+G41/G40
3527.3	$ 15,483	$ 15,483	0.9%	1229	X	0.916762505	P2 = RSQ	=+I41^2
mean	regression error
Ch.2 ACC220//HCT	Hi-Low	Hi-Low	Regression	Regression	Excel 5
Actual	Actual	Modeled	%	Modeled	%	Net Error
Units	$	$s	Error	$s	Error	Hi-Low	Regression
2,310	$ 10,113	$ 10,568	4.5%	$ 10,932	8.1%	4.5%	8.1%
2,453	$ 12,691	$ 11,085	12.7%	$ 11,467	9.6%	-12.7%	-9.6%
2,641	$ 10,905	$ 11,765	7.9%	$ 12,170	11.6%	7.9%	11.6%
2,874	$ 12,949	$ 12,608	2.6%	$ 13,041	0.7%	-2.6%	0.7%
3,540	$ 15,334	$ 15,017	2.1%	$ 15,531	1.3%	-2.1%	1.3%
4,861	$ 21,455	$ 19,795	7.7%	$ 20,469	4.6%	-7.7%	-4.6%
5,432	$ 21,270	$ 21,860	2.8%	$ 22,604	6.3%	2.8%	6.3%
5,268	$ 19,930	$ 21,267	6.7%	$ 21,991	10.3%	6.7%	10.3%
4,628	$ 21,860	$ 18,952	13.3%	$ 19,598	10.3%	-13.3%	-10.3%
3,720	$ 18,383	$ 15,668	14.8%	$ 16,204	11.9%	-14.8%	-11.9%
2,106	$ 9,830	$ 9,830	0.0%	$ 10,170	3.5%	0.0%	3.5%
2,495	$ 11,081	$ 11,237	1.4%	$ 11,624	4.9%	1.4%	4.9%
6.4%	6.9%	-2.5%	0.9%
Average	Average	average error
absolute error	absolute error
RSQ	X	Y	Prod	X2	Y2
by	1,217	5,370	6,537,587	1,481,900	28,841,375
Hand	1,074	2,792	2,999,986	1,154,192	7,797,591
886	4,578	4,058,003	785,587	20,961,899
653	2,534	1,655,819	426,844	6,423,268
(13)	149	(1,893)	160	22,325
(1,334)	(5,972)	7,964,102	1,778,667	35,659,808
(1,905)	(5,787)	11,021,512	3,627,755	33,484,547
(1,741)	(4,447)	7,740,019	3,029,920	19,772,103
(1,101)	(6,377)	7,018,493	1,211,467	40,660,815
RSQ = Pearson2 = correlation coefficient2	(193)	(2,900)	558,653	37,120	8,407,584
1,421	5,653	8,035,390	2,020,188	31,961,120
RSQ	1,032	4,402	4,544,761	1,065,712	19,381,273
by	Sum of products	62,132,433	16,619,515	253,373,707	Sums
Hand	4,077	15,918	SqRoot of sum
64,891,818	Products of Square roots
0.9575	Pearson [P] = r
0.9168	Pearson2 = RSQ
Slope By "Hand"
b = slope
_ X = mean of X	_ Y = mean of Y
X	Y	X - mean	Y - mean	X x Y	∆X2
2310	$ 10,113	-1217.3	$ (5,370)	6537587	1481900.44444444
2453	$ 12,691	(18.03)	-1074.3	$ (2,792)	2999986	1154192.11111111
2641	$ 10,905	9.50	-886.3	$ (4,578)	4058003	785586.777777778
2874	$ 12,949	(8.77)	-653.3	$ (2,534)	1655819	426844.444444445
3540	$ 15,334	(3.58)	12.7	$ (149)	-1893	160.4444444444
4861	$ 21,455	(4.63)	1333.7	$ 5,972	7964102	1778666.77777778
5432	$ 21,270	0.32	1904.7	$ 5,787	11021512	3627755.11111111
5268	$ 19,930	(8.17)	1740.7	$ 4,447	7740019	3029920.44444444
4628	$ 21,860	3.02	1100.7	$ 6,377	7018493	1211467.11111111
3720	$ 18,383	(3.83)	192.7	$ 2,900	558653	37120.4444444444
2106	$ 9,830	(5.30)	-1421.3	$ (5,653)	8035390	2020188.44444444
2495	$ 11,081	(3.22)	-1032.3	$ (4,402)	4544761	1065712.11111111
X	Y	-0.0	0.0	62132433.3333333	16619514.6666667
3527.3	$ 15,483	$ (4)
mean	3.7385	slope
Intercept By "Hand"	Y = a + bX
after you have the slope then
intercept = [Mean of Y] - [mean of X]*[slope]
_ Y	$ 15,483
_ X	3527.3
Slope	3.7385
Intercept	2,296.4

HCT---ACC220---&P of &N---&D,&T---&F,&A

The variability of Y attributable to the variability of X

Parson done by "hand" using formula above

Ch. 3 NEW

Integrated Example	Ch.3	Variance is material
Job Order Costing	Variance must be capitalized @ reporting date for GAAP
M	WIP	FG	Operating 7 days a week
A.	Overhead Budget for the Year:	Y = a + bX	Beginning	$8,000	$11,000	$14,000
Variable Overhead per Direct Labor [DL] Hrs.	$ 2.75	b	Est	Additions	$45,000	$92,500	$27,000	June	May
Estimated DL hrs.	42,000	X	Est	Used/completed/sold	($43,000)	($27,000)	($27,000)	Actual overhead spending	$ 1,085,000	$ 1,000,200
Variable	$ 115,500	bX	Est	Ending	$10,000	$76,500	$14,000	Applied overhead	$ 962,000	$ 933,000
Fixed Overhead	$ 94,500	a	Est	Under applied	$ 123,000	$ 67,200
$ 210,000	$ 210,000	Y=a+bX	Portion of month in inventory	30/30	18/31
42,000	POHR	$ 5.00	per DL Hr.	100.0%	58.1%
$5.00	Dr/(Cr)	Dr/(Cr)
Dr/(Cr)	Dr/(Cr)	Income statement	Ending inventory/days	48.00
Contra acct. or	Inventory	Overhead spending in CoGS
Liability Acct.	Materials	WIP	FG	CoGS	CoGS	Selling & Admin Exp	Balance in inventory @ June end	$ 162,019
May ending Inventory [Beginning fo June]	$8,000	$11,000	$14,000	Period
June Ending Inventory before adjustment	$10,000	$76,500	$14,000
Material in production
June Activity	Beginning	$8,000
1	Purchase Materials	A/P	($45,000)	$45,000	Added	$45,000
Ending	($10,000)
2	Issued Materials from inventory	$43,000	materials from inventory used in period	Cost including allocation of Fixed Cost
Materials for products	($43,000)	$40,000	($3,000)	less materials to overhead	Variable Cost: Direct Cost [Direct Labor & Materials] +
Indirect materials	$3,000	$40,000	Materials used in production	Variable overhead [within a relevant range]
Marginal Cost: the out-of-packet costs to produce [sell] next unit
3	Payroll for Period	Total Manufacturing costs
Sales Salaries	$2,000	Materials	$40,000	Manufacturing Overhead Control
Direct labor charges to jobs [3500 hrs.@$10/hr]	Wage payable	($49,000)	$35,000	DL	SG&A	DL	$35,000	Accounts are resident in CoGS
Indirect manufacturing labor	$12,000	Applied overhead	$17,500	Spending Accounts
Mfg.OH	$92,500	Salary Expense	66,000
4	Other Manufacturing overhead spending	Wage Expense	78,000
Utilities	($1,700)	$1,700	Production Direct labor	215,000
Accum. Depreciation	($2,900)	$2,900	Fringe benefit expense	74,000
$3,000
Factory Property taxes payable	($1,000)	$1,000	$12,000	Commission expense	- 0	$ 710,000	Budget/estimated OH Spending
$1,700	Advertising expense	750	35500	Budget/estimated Dl Hrs.
5	Apply overhead to jobs using POHR	3500	hrs	$17,500	($17,500)	$2,900	Building rent expense	21,000	$ 20.00	POHR
$ 5.00	$1,000	Equipment lease expense	5,800	34,000	Acutal DL Hrs.
6	Incur Selling expense-Advertising	$3,500	$750	$20,600	Office supply expense	2,300	$680,000	Applied Overhead
Contract labor Expense	34,000
7	Completed Work from WIP	($27,000)	$27,000	Beginning	$11,000	WIP	Travel/entertainment exp.	2,000
added	$92,500	Professional services	3,200
Ending	($76,500)	WIP	Bank charges/fees	- 0
To FG	$27,000	Cost of Goods manufactured	Depreciation expense	144,000
Miscellaneous expense	3,950
8	Sold FG to Customer	($27,000)	$27,000	Beginning	$14,000	Total	650,000	this had been debited to CoGS
added	$27,000	inventory did NOT change
Ending	($14,000)	usually beginning ≠ ending	Applied overhead	(680,000)	this was credited thru Applied OH acct. to CoGS
To CoGS	$27,000	Cost of Goods Sold [CoGS]
Net Effect	(30,000)	decrease CoGS
B 1	End of period adjustment for over/under applied overhead	WIP	FG	$3,100	←Sum	under applied overhead	+Q51+P51
$s applied OH in Inventory [less than 1 Mo. In Inv.] GIVEN	Memo	$10,000	$1,500	MOH remaing in Inv.	% Underapplied	($17,500)	$20,600	17.7%	$3,100
Add	17.7%	$1,771	$266	($2,037)	Entry	17.7%	Applied	Spending	under	-17.7%
Overhead is applied on labor Hrs	Inventory up	65.71%	applied
Dr. Inventory= Under applied [inventory too low, profit too low]	87%	13%	$3,100	WIP	FG	35000	17500
(Cr.) Inventory= over applied [Inventory too high, profit too high]	$10,000	$1,500	$11,500	3500	3500
If over applied Cr. Inventory AND dr. CoGS	+11500/17500 =	65.71%	of a month	10	5
+66% * $3100	$2,037
B 2	End of period adjustment for over/under applied overhead	WIP	FG	$7,264	←Sum	under applied overhead	Integrated Example
$s applied OH in Inventory [more than 1 Mo. In Inv.]	Memo	$8,000	$32,000	çççççMore than one month
($728)	$ (2,914)	$3,642	Entry
Overhead is applied on labor Hrs	Inventory up
Dr. Inventory= Under applied [inventory too low, profit too low]
(Cr.) Inventory= over applied [Inventory too high, profit too high]
If over applied Cr. Inventory AND dr. CoGS	$40,000	Applied in inventory
$17,500	Applied this Mo
$16,000	Applied prior Mo
$16,500	Applied 2nd Mo. Prior
Over/(under applied)	Adjustment to ending inventory
# mo Applied in inventory	1.00	$17,500	Applied this Mo	($3,100)	$ (3,100)	17.7%	under	applied
1.00	$16,000	Applied prior Mo	$600	$ 600	given
0.39	$6,500	Applied 2nd Mo. Prior	($2,900)	$ (1,142)	given
2.39	$ 40,000	($5,400)	$ (3,642)
$8,000	$32,000	$40,000
20.0%	80.0%	100.0%
$ (728)	$ (2,914)	$ (3,642)
500	525
500	525	1000	1200
1300	1300	0.5	0.4375
0.3846153846	0.4038461538

ACC220---HCT---&P of&N---&D, &T---&F, &A

In PPT

Ch.3 Job Cost OLD

Integrated Example	Ch.3	Variance is material
Job Order Costing	See new file	Variance must be capitalized @ reporting date for GAAP
Operating 7 days a week
A.	Overhead Budget for the Year:	Y = a + bX
Variable Overhead per Direct Labor [DL] Hrs.	$ 2.75	b	June	May
Estimated DL hrs.	42,000	X	Actual overhead spending	$ 1,085,000	$ 1,000,200
$ 115,500	bX	Applied overhead	$ 962,000	$ 933,000
Fixed Overhead	$ 94,500	a	Under applied	$ 123,000	$ 67,200
$ 210,000	Y=a+bX	Portion of month in inventory	30/30	18/31
POHR	$ 5.00	per DL Hr.	100.0%	58.1%
Dr/(Cr)	Dr/(Cr)
Dr/(Cr)	Dr/(Cr)	Income statement	Ending inventory/days	48.00
Contra acct. or	Inventory	Overhead spending in CoGS
Liability Acct.	Materials	WIP	FG	CoGS	Cogs	Selling & Admin Exp	Balance in inventory @ June end	$ 162,019
May ending Inventory	$8,000	$11,000	$14,000
June Ending Inventory before adjustment	$10,000	$76,500	$14,000
Material in production
June Activity	Beginning	$8,000
1	Purchase Materials	A/P	($45,000)	$45,000	Added	$45,000
Ending	($10,000)
2	Issued Materials from inventory	$43,000	materials from inventory used in period	Cost including allocation of Fixed Cost
Materials for products	($43,000)	$40,000	($3,000)	less materials to overhead	Variable Cost: Direct Cost [Direct Labor & Materials] +
Indirect materials	$3,000	$40,000	Materials used in production	Variable overhead [within a relevant range]
Marginal Cost: the out-of-packet costs to produce [sell] next unit
3	Payroll for Period	Total Manufacturing costs
Sales Salaries	$2,000	Materials	$40,000	Manufacturing Overhead Control
Direct labor charges to jobs [3500 hrs.]	Wage payable	($49,000)	$35,000	DL	$35,000	Accounts are resident in CoGS
Indirect manufacturing labor	$12,000	Applies overhead	$17,500	Spending Accounts
$92,500	Salary Expense	66,000
4	Other Manufacturing overhead spending	Wage Expense	78,000
Utilities	($1,700)	$1,700	Production Direct labor	215,000
Accum. Depreciation	($2,900)	$2,900	Fringe benefit expense	74,000
Property taxes payable	($1,000)	$1,000	Commission expense	- 0
Advertising expense	750
5	Apply overhead to jobs using POHR	3500	hrs	$17,500	($17,500)	Building rent expense	21,000
Equipment lease expense	5,800
6	Incur Selling expense-Advertising	$750	Office supply expense	2,300
Contract labor Expense	34,000
7	Completed Work from WIP	($27,000)	$27,000	Beginning	$11,000	WIP	Travel/entertainment exp.	2,000
added	$92,500	Professional services	3,200
Ending	($76,500)	WIP	Bank charges/fees	- 0
To FG	$27,000	Cost of Goods manufactured	Depreciation expense	144,000
Miscellaneous expense	3,950
8	Sold FG to Customer	($27,000)	$27,000	Beginning	$14,000	Total	650,000	this had been debited to CoGS
added	$27,000
Ending	($14,000)	usually beginning ≠ ending	Applied overhead	(680,000)	this was credited thru Applied OH acct. to CoGS
To CoGS	$27,000	Cost of Goods Sold [CoGS]
Net Effect	(30,000)	decrease CoGS
B 1	End of period adjustment for over/under applied overhead	WIP	FG	$3,100	←Sum	under applied overhead
$s applied OH in Inventory [less than 1 Mo. In Inv.]	Memo	$10,000	$1,500	% underaplied	($17,500)	$20,600	17.7%
Add	17.7%	$1,771	$266	($2,037)	Entry	17.7%	Applied	Spending	under
Overhead is applied on labor Hrs	Inventory up	applied
Dr. Inventory= Under applied [inventory too low, profit too low]	35000	17500
(Cr.) Inventory= over applied [Inventory too high, profit too high]	3500	3500
If over apllied Cr. Inventory AND dr. CoGS	10	5
B 2	End of period adjustment for over/under applied overhead	WIP	FG	$4,163	←Sum	under applied overhead	Integrated Example
$s applied OH in Inventory [> 1 Mo. In Inv.]	Memo	$8,000	$32,000	% underaplied
Add	0.0%	($728)	$ (2,914)	$3,642	Entry
Overhead is applied on labor Hrs	Inventory up
Dr. Inventory= Under applied [inventory too low, profit too low]
(Cr.) Inventory= over applied [Inventory too high, profit too high]
$0	($11,900)	ERROR:#DIV/0!
If over apllied Cr. Inventory AND dr. CoGS	$40,000	Aplied in inventory	Applied	Spending	under
$17,500	Applied this Mo	applied
$16,000	Applied prior Mo
$16,500	Appilied 2nd Mo. Prior
Over/(under applied)	Adjustment to ending inventory
# mo Applied in inventory	1.00	$17,500	Applied this Mo	($3,100)	$ (3,100)	17.7%	under	applied
1.00	$16,000	Applied prior Mo	$600	$ 600
0.39	$6,500	Appilied 2nd Mo. Prior	($2,900)	$ (1,142)
2.39	$ 40,000	($5,400)	$ (3,642)
$8,000	$32,000	$40,000
20.0%	80.0%	100.0%
$ (728)	$ (2,914)	$ (3,642)

Ch. 4 process Board e.g.

Board Example
Weighted Average	Simple
Ch. 4 Process Costing	Equivalent
$s	Qty	%	Units
Beginning	$ 22,000	6,000	75%	4,500	6,000
10,000
Started in Period	$ 50,000	10,000	16,000
Completed in period	11,000	100%	11,000	11,000
5,000
Ending	5,000	60%	3,000	16,000
Per Unit	$ 22,000	Beginning $s
$ 50,000	Period $
$ 72,000	Beg +Period
Completed units corresponding to Beg + Period
11,000	Units
Cost per equivalent unit
Units	11,000	Completed = 100%
3,000	Ending equivalent units
14,000	Total:
$ 5.14	Weighted average cost per equivalent unit
+ 3000 X 5.14 =	15,420	Ending WIP inventory $s
Same Data Set @ Weighted Average
FIFO	Equivalent
$s	Qty	%	Units
Period only	$ 50,000
100% - 75%	to complete
Completed from Beginning	6,000	25%	1,500	beginning
Started	10,000	Started in Per.	10,000	11,000	completed
Started & completed	11000-6000=	5,000	100%	5,000	11000 completed	End	(5,000)	(6,000)	started with Beginning
5000from started	Stared & c0mpleted	5,000	5,000	End
Ending	NOT complete	5,000	60%	3,000
1,500
Equivalent units done for period costsèè	9,500	5,000	$ 50,000
Cost Each	$ 5.26	3,000	9,500
9,500	$ 5.26
Ending inventory	$ 15,780
5.26 x 3000
Sheet	Income	Corrected
Balance	Statement	Hand-out
Account Title	Accounts	Accounts	Feb.6-2017
Work-in-process	Inventory
Raw materials	Inventory
Finished Goods	Inventory
Wages Payable for direct labor	Wages payable
Direct Labor from wages payable	Inventory [WIP]
Overhead expense Accounts [spending accts.]	CoGS: manufacturing spending [Dr.]
Applied overhead Acct. [@actual OR @ POHR]	CoGS: manufacturing spending [Cr.]
WIP is debited
Sheet	Income	Corrected
Balance	Statement	Hand-out
Account Title	Accounts	Accounts	Feb.6-2017
Work-in-process	Inventory
Raw materials	Inventory
Finished Goods	Inventory
Wages Payable for direct labor	Wages payable
Direct Labor from wages payable	Inventory [WIP]
Overhead expense Accounts [spending accts.]	CoGS: manufacturing spending [Dr.]
Applied overhead Acct. [@actual OR @ POHR]	CoGS: manufacturing spending [Cr.]
WIP is debited

ACC220---&P of &N---&D, &T---&F, &A---HCT

Handout

Ch. 4 slides 40-50

Ch.4 Process cost
Weighted Average Inventory Valuation Method (FIFO Average)	Same if total overhead	Weighted average	Assembly Department
Department: SMD	Materials	Materials	Materials	Materials	Conversion = DL + Variable Overhead	Total $	Cost Reconciliation / Weighted Average Method
Units	$	% complete	Equiv. Units	Units	$	% complete	Equiv. Units	Costs to be accounted for:
Qty	$	%	Eq. Qty	Qty	$	%	Eq. Qty	Cost of beginning Work in Process Inventory	$15,175
Beginning	200	200	$9,600	55%	110	200	$5,575	30%	60	$ 15,175	Costs added to production during the period	$729,500
Total cost to be accounted for	$744,675
Started	5000	5000	$378,600	5000	$350,900	added in period	$ 729,500	Total costs to be accounted	$744,675
solve	Completed	4800	4800	100%	4800	4800	100%	4800
10000
Ending	-400	400	40%	160	400	25%	100
Cost accounted for as follows:
Equivalent Production	$388,200	4960	$356,475	4900	200	$356,475	Cost of units transferred out	$ 724,877
Ending WIP Inventory	$19,798
Total $ for Wghtd. Avgr. inventory valuation	$378,200	$356,475	$ 734,675	200	Cost of ending Work in Process Inventory	$19,798
Per unit	$78.27	$72.75	$ 744,675	5000	4900	Ending WIP Inventory	$ 19,798
5200	72.75	Total cost accounted for	$ 744,675
To next department	4800	$375,677	100%	4800	4800	$349,200	100%	4800	$ 724,877
Ending WIP for SMD	400	$12,523	40%	160	400	$7,275	25%	100	$ 19,798	4800	$72.75
$388,200	4960	$356,475	4900	$ 744,675	400	100	End
0.00	5200	$7,275	End Inv. $
FIFO:	Appendix A	Same if total overhead
Department: SMD	Materials	Conversion = DL + Variable Overhead	Total $	F I F O
Units	$	% complete	Equiv. Units	Units	$	% complete	Equiv. Units
M
Beginning	200	$9,600	55%	110	200	$5,575	30%	60	$ 15,175	90
Completion of beginning units	45%	90	to complete beginning	70%	140	4600
160
Started	5000	$378,600	5000	$350,900	$ 729,500	4850
Completed	4800	100%	4800	100%	4800	LOH
140	to finish beginning
Started & completed this period	4600	100%	4600	4600	100%	4600	4600	start & complete
100	End Eq. Qty
Ending	400	40%	160	400	25%	100	4840
Equivalent Production	$378,600	4850	Work done in the period only	4840
Total $ for FIFO	$378,600	$350,900	$ 729,500	$350,900
Per unit	$78.06	$72.50	$ 150.56	4840
72.50	100
To next department	4800	$376,040	100%	4800	4800	$349,225	100%	4800	$ 725,265	$ 7,250
Ending WIP for SMD	400	$12,160	40%	160	400	$7,250	25%	100	$ 19,410
$378,200	4960	$356,475	4900	$ 744,675
Ending Inventory	Qty	$	% compl.	Eq. Qty	Qty	$	% compl.	Eq. Qty	Total
Weighted Average	400	$12,523	40%	160	400	$7,275	0.25	100	$19,798
FiFO	400	$12,160	40%	160	400	$7,250	0.25	100	$19,410
difference	0	$ 362.58	0	0	0	$ 25.00	0	0	$ 387.58
Per unit	$0.20	$0.25
$78.27	$72.75
$78.06	$72.50
$0.20	$0.25
Separate File tab "Cost Allocaton"
Maintenance
$600,000
37.50%	Machining	$225,000
62.50%	Assembly	$375,000	+
IT
$116,000
88.9%	Machining	$103,111
11.1%	Assembly	$12,889
600000
Reciprocal Method
Function A: with reciprocal allocation of OH	Function A = Maintenance
Function B = IT
Function A with reciprocal allocation =
Function A Spending + (Function A % usage of Function B X Function B Spending)
Maintenance =	$600000 + (10% X IT)
IT =	$116000 + (20% X Maintenance)
Maintenance =	$600000 + 10% X ($116000 + (20% X Maintainance))
$600000 + 10% X $116000 + 10% X (20% X Maintenance)
$600000 + $116000 + 2% X Maintanance
98% Maintenance =	$600000 + $11600
98% Maintenance =	$600000 + $11600
98% Maintenance =	$611,600
ah	100% Maintenance =	$ 624,082
IT = $116000 +20%*PM
IT = $116000 +20%*$624082	Reciprocal	Budget	Allocated
ai	IT = $116000 + $124816	$ 624,082	$ - 0	- 0
IT =	$ 240,816	$ 240,816	$ - 0	- 0
$ 864,898	$ - 0	- 0
Machining +
Assembly
PM	IT	0	0	0
$ 624,082	- 0	- 0	- 0	ah X ad
240,816	- 0	- 0	- 0	ai X af
Functional FOH→	- 0	- 0	- 0	ab
$ - 0	$ - 0	$ - 0

ACC220---HCT---&P of &N---&D, &T---&F, &A

80%

90%

Ch.4 Cost alloc

ACC302
Chapter 15 ACC302 /// Chapter 4 ACC220
Allocation of Costs
HC Tamburro
Single & Dual Rate Methods:
Data Set: #1
Amount	From	To
a	Relevant Range hours	11,000	13,500
b	Master Budget Fixed Manufacturing Costs	$ 3,000,000
c	Practical Capacity	18,750	Hours
d	Master Budget 2xx1: Peripherals	8,000	hours
e	Master Budget 2xx1: Microcomputers	4,000	hours
f	Total Budgeted Hours	12,000	hours
g	Master Budget Variable OH	$ 200.00	hour
h	Actual 2xx1: Peripherals	9,000
i	Actual 2xx1: Microcomputers	3,000
j	Total Actual Hours	12,000
Single Rate/Single Pool
k	Total Variable OH Budget	$ 2,400,000	g*f
Master Budget Fixed Manufacturing Costs	$ 3,000,000	+b
l	Total Overhead Pool	$ 5,400,000	+ k + i
Rate per Hour
m	Microcomputers	$ 450.00	+ l / f
n	peripherals	$ 450.00	+ l / f
Dual Rate/Single Pool
b	Master Budget Fixed Manufacturing Costs	$ 3,000,000
f	Total Budgeted Hours	12,000
p	Fixed OH Rate	$ 250.00	+ b / f
g	Master Budget Variable OH	$ 200.00
q	Combined Fixed & Variable	$ 450.00	+ p + g
Data Set: #2
Assuming actual = Budget for variable OH rates
Review Fixed OH only
Isolation of change in hours only
Actual hours
Case	1	2	3
r	Microcomputers	8,000	8,000	8,000
s	Peripherals	4,000	7,000	2,000
t	Totals:	12,000	15,000	10,000
Master Budget Fixed Manufacturing Costs	$ 3,000,000	$ 3,000,000	$ 3,000,000	b
Actual Hours @ Total Budget OH
u	Microcomputers	$ 2,000,000	$ 1,600,000	$ 2,400,000	+ (r / t) * b
v	Peripherals	$ 1,000,000	$ 1,400,000	$ 600,000	+ (s / t) * b
b	Total:	$ 3,000,000	$ 3,000,000	$ 3,000,000	+ u + v
Rate per hour	Actual Hours @ Total Budget OH
w	Microcomputers	$ 250.00	$ 200.00	$ 300.00	+ u / r
x	Peripherals	$ 250.00	$ 200.00	$ 300.00	+ v / s
z	Diff: Master Budg. Single Rate
aa	Microcomputers	$ - 0	$ 50.00	$ (50.00)
Peripherals	$ - 0	$ 50.00	$ (50.00)
ACC 220 Start here	data references from #3	Maintenance	IT
Data Set: #3	Production Only	2,400	1600	88.9%
Support Departments	Operating Departments	4,000	2,400	37.5%	200	11.1%
Maintenance	IT Support	Machining	Assembly	Total:	6,400	4,000	62.5%	1800
ab	Functional Spending $s	$ 600,000	$ 116,000	$ 400,000	$ 200,000	$ 1,316,000
ac	Units: Hours	1,600	2,400	4,000	8,000	Production Hrs.
ad	%	20.0%	30.0%	50.0%	100.0%
Without support functions	0.0%	37.5%	62.5%	$ 600,000	225000	37.5%	Maintenance
$ 116,000	103111	88.9%	IT Support
ae	Computer Hours	200	1600	200	2,000	328111
af	%	10.0%	80.0%	10.0%	100.0%
Without support functions	88.9%	11.1%	$ 600,000	$ 375,000	62.5%
without service to service	$ 116,000	$ 12,889	11.1%
Data Set: #4	387889
Direct Method of Overhead Allocation
Allocate from Support direct to operating
ag	Total Operating depts. Hours	6,400	ac operating depts.
ah	support cost-rate per hour	Maintenance	$ 93.75	+ 'ab' Maint. / 'ac' opera. hours
ai	support cost-rate per hour	Assembly	64.44	+ 'ab' IT. / 'ac' opera. hours
Maintenance	IT Support
Allocated support costs	Maintenance	IT Support	$ 600,000	$ 600,000	$ 116,000	$ 116,000
aj	Machining	225,000	103,111	37.5%	62.5%	88.9%	11.1%
ak	Assembly	375,000	12,889	$ 225,000	$ 375,000	$ 103,111	$ 12,889
al	Total	600,000	116,000	Machining	Assembly	Machining	Assembly
Direct Fixed OH costs	Direct	Allocated	Total	Rate	Maintenance	IT Support	SUM
az	+ab + aj	Machining	400,000	328,111	728,111	$ 303.38	225,000	103,111	328,111
ax	+ab + ak	Assembly	200,000	387,889	587,889	$ 146.97	375,000	12,889	387,889
aw	+ az + ax	Total	600,000	716,000	1,316,000
Step Down Method of Overhead Allocation	allocate service to service // set hierarchy
Maintenance is deemed Step 1 or higher in hierarchy for allocation
Support Departments	Operating Departments
Maintenance	IT Support	Machining	Assembly	Total:
ac	Hours work done by maint.	1,600	2,400	4,000	8,000
ad	%	20.0%	30.0%	50.0%	100.0%	$ 600,000	Maintenance
$ (120,000)	to IT	20.0%
ae	IT base = Computer Hours	200	1600	200	2,000	$ 480,000	M to Prodn
af	%	10.0%	80.0%	10.0%	100.0%
Funtion spending above
ab	Functional Spending $s	$ 600,000	$ 116,000	$ 400,000	$ 200,000	$ 1,316,000	$ 600,000	30.0%	Machining	$ 180,000
Maint to prodn.	$ 600,000	50.0%	Assembly	$ 300,000
ac From Maint. To all Functions	$ 120,000	$ 180,000	$ 300,000	$ 600,000	+ ab Maint. ad %
ad	Subtotal:	$ 236,000	$ 580,000	$ 500,000	$ 1,316,000
ae	Operating % of IT	88.9%	11.1%	100.0%	af w/out Maint.%	$ 236,000	$ 236,000
af	From IT to Opera. Depts.	$ 209,778	$ 26,222	$ 236,000	+ af * ad IT	Prod. Only %	88.9%	11.1%
From IT after alloc from M	$ 209,778	$ 26,222
ag	Total:	$ 789,778	$ 526,222	$ 1,316,000	+ af + ag	Machining	Assembly
80%/90%	10%/90%
Reciprocal Method
Function A: with reciprocal allocation of OH	Function A = Maintenance
Function B = IT
Function A with reciprocal allocation =
Function A Spending + (Function A % usage of Function B X Function B Spending)
Maintenance =	$600000 + (10% X IT)
IT =	$116000 + (20% X Maintenance)	IT = ($116000 + (20% X Maintainance))
Maintenance =	$600000 + 10% X ($116000 + (20% X Maintainance))
$600000 + 10% X $116000 + 10% X (20% X Maintenance)
$600000 + $116000 + 2% X Maintanance
98% Maintenance =	$600000 + $11600
98% Maintenance =	$600000 + $11600
98% Maintenance =	$611,600
ah	100% Maintenance =	$ 624,082
IT = $116000 +20%*PM
IT = $116000 +20%*$624082	Reciprocal	Budget	Allocated
ai	IT = $116000 + $124816	$ 624,082	$ 600,000	499,265
IT =	$ 240,816	$ 240,816	$ 116,000	216,734
$ 864,898	$ 716,000	716,000
Machining +
Assembly
PM	IT	Machining	Assembly	Total:
$ 624,082	187,224	312,041	499,265	ah X ad
240,816	192,653	24,082	216,734	ai X af
Functional FOH→	400,000	200,000	600,000	ab
$ 779,877	$ 536,122	$ 1,316,000
Comparison of Methods	Machining +
Assembly
Machining	Assembly	Total:
Direct Method of Overhead Allocation	728,111	587,889	1,316,000
Step Down Method of Overhead Allocation	789,778	526,222	1,316,000
Reciprocal Method	779,877	536,122	1,316,000
Incremental Cost Allocation
Identify primary use
Identify secondary use
Aloocate primary amount of cost to primary use
Allocate incrment over primary to secondary
Value @ cost	Tons
Extract Aluminum fro Ore	12,000,000	24,000,000
Gold is extracted as well	1,200,000	0.0536
Total cost to extract	6,100,000
Withuot extracting Gold	6,000,000
Incremental cost assigned to gold	100,000

ACC220---Ch. 4---HCT---&P of &N---&D,&T---&F,&A

80%

90%

Ch.4 Proc.Cost2 NOT used

Ch.4 Process cost
Weighted Average Inventory Valuation Method (FIFO Average)
Department: SMD	Materials	Conversion = DL + Variable Overhead	Total $
Units	$	% complete	Equiv. Units	Units	$	% complete	Equiv. Units
Beginning	200	$9,600	55%	110	200	$5,575	30%	60	$15,175
Started	5000	$368,600	5000	$350,900	$719,500
Completed	4800	100%	4800	100%	4800
Ending	400	40%	160	400	25%	100
Equivalent Production	4960	4900
Total $ for Wghtd. Avgr. inventory valuation	$378,200	$356,475	$734,675
Per unit	76.25	$ 72.75
To next department	4800	$366,000	100%	4,800	4800	$349,200	100%	4,800	$715,200
Ending WIP for SMD	400	$12,200	40%	160	400	$7,275	25%	100	$19,475
$378,200	4,960	$356,475	4,900	$734,675
FIFO:
Department: SMD	Materials	Conversion = DL + Variable Overhead	Total $
Units	$	% complete	Equiv. Units	Units	$	% complete	Equiv. Units
Beginning	200	$9,600	55%	110	200	$5,575	30%	60	$15,175
Started	5000	$368,600	5000	$350,900	$719,500
Completed	4800	100%	4800	100%	4800
Started & completed this period	4600	100%	4600	4600	100%	4600	90	4600	160	4850
Ending	400	40%	160	400	25%	100
Equivalent Production	4850	4840	4600	160	200	-110	4850
Total $ for FIFO	$368,600	$350,900	$719,500
Per unit	$ 76.00	$ 72.50
To next department	4800	$366,040	100%	4,800	4800	$349,225	100%	4,800	$715,265
Ending WIP for SMD	400	$12,160	40%	160	400	$7,250	25%	100	$19,410
$378,200	4,960	$356,475	4,900	$734,675
FIFO:
Weighted Average	400	$12,200	40%	160	400	$7,275	25%	100	$19,475
FiFO	400	$12,160	40%	160	400	$7,250	25%	100	$19,410
$12,160
349600
$361,760
Conversion Costs Transferred OUT:
Weighted Average:
Beginnig Costs	5,575
Period Costs	350,900
Total	356,475
Equivalent units	4,900
per Equivalent Unit	$ 72.75
Completed: To next Department or FG	4,800	349,200
Ending in Department	400 = 100 Eq.units	7,275
356,475
FIFO
Beginnig Costs	5,575	to next department
Period Costs	350,900
Total	356,475
Period equivalent units	4,840	[period cost]
per Equivalent Unit	$ 72.50
Completed: To next Department or FG	t6
Started & completed	4,600	333,500
compltion of beginning	140	10,150
Ending in Department	400 = 100 Eq.units	7,250
350,900
to next department
Beginning $	5,575
Perod completion
Started & completed	333,500
Beginning completed	10,150	343,650
349,225
per unit =	$ 72.76
Transferred out + Ending =	356,475
Ch.4 Process cost	BOARD
Weighted Average Inventory Valuation Method (FIFO Average)
Department: ACC220	Materials	Conversion = DL + Variable Overhead	Total $
Dept.A to Dept. B	Units	$	% complete	Equiv. Units	Units	$	% complete	Equiv. Units	1100	End
6500	100%
Beginning	600	$10,000	60%	360	600	$6,000	40%	240	$16,000	7600
to
Started Dept. A	7000	$120,000	7000	$105,000	$225,000	acct. for
Completed	6500	100%	6500	100%	6500	Completed	6500
Ending	1100	70%	770	1100	30%	330	End	1100
Equivalent Production	7270	6830
Total $ for Wghtd. Avgr. inventory valuation	$130,000	Beginning + started $s	$111,000	$241,000
Per unit	$ 17.88	$ 16.25183	17.8817056396	16.2518301611
To next department	6500	$116,231	100%	6,500	6500	$105,637	100%	6,500	$221,868
Ending WIP for ACC220	1100	$13,769	70%	770	1100	$5,363	30%	330	$19,132
$130,000	7,270	$111,000	6,830	$241,000
FIFO:
Department: ACC220	Materials	Conversion = DL + Variable Overhead	Total $	using same begininng
Units	$	% complete	Equiv. Units	Units	$	% complete	Equiv. Units	balance as an example
Beginning	600	$ 10,000	60%	360	600	$ 6,000	40%	240	$16,000	Conver- sion	360	Beg
Started Dept. A	7000	$ 120,000	7000	$105,000	$225,000	5900	100%
Completed	6500	100%	6500	100%	6500	6590	330	End
Started & completed this period	5900	100%	5900	5900	100%	5900	work done in period only
Ending	1100	70%	770	1100	30%	330	Matls	240	Beg
Equivalent Production	6910	6590	5900	100%
Total $ for FIFO	$120,000	Started $s only	$105,000	$225,000	770	End
Per unit	$ 17.37	$ 15.93	6910
To next department	6500	$116,628	100%	6,500	6500	$105,742	100%	6,500	$222,370
Ending WIP for ACC220	1100	$13,372	70%	770	1100	$5,258	30%	330	$18,630
$130,000	7,270	$111,000	6,830	$241,000
FIFO:
Weighted Average	1100	$13,769	70%	770	1100	$5,363	30%	330	$19,132
FiFO	1100	$13,372	70%	770	1100	$5,258	30%	330	$18,630
B	+	A	-	E	=	TRANSFERRED
WA	$ 10,000	$ 120,000	($13,769)	$116,231
FIFO	$ 10,000	$ 120,000	($13,372)	$116,628
ME JE
Dr. WIP Dept.B
Cr. WIP Dept.A

ACC220---HCT----&P of &N---&D,&T---&F,&A

Ch.4ProcCost1

Chapter 4
Process Costing	HSO TOY COMPANY
Data Set:
RawMaterial	DirectLabor	Mfg.OverHead	Total
Beginning Inventory	$10,000	$1,060	$1,620	$12,680
Units	10,000	10,000	10,000	10,000
% complete	100%	30%	40%
Equivalent units	10,000	3,000	4,000
Units started in period	40,000	40,000	40,000	40,000
Units completed in period	44,000	44,000	44,000	44,000
Cost incurred in period	$44,000	$22,440	$43,600	$110,040
Units to be accounted for = Beg + started	50,000	50,000	50,000	50,000
Ending Inventory	6,000	6,000	6,000	6,000
% complete	100%	50%	60%
Equivalent units	6,000	3,000	3,600
A. Ending Inventory Value using Weighted Average
Use Beginning Inventory + Period costs
RM	DL	MOH	Total
Beginning Inventory	$10,000	$1,060	$1,620	$12,680
Cost incurred in period	$44,000	$22,440	$43,600	$110,040
Beginning + Period $s = Ending Inventory $s	$54,000	$23,500	$45,220	$122,720
Completed units @ 100%	44,000	44,000	44,000
Ending Inventory Equivalent units	6,000	3,000	3,600
Total Beg. + Period equivalent units	50,000	47,000	47,600
Cost per Equivalent unit	$1.08	$0.50	$0.95	$2.53
for units to next area
Ending Equivalent units	6,000	3,000	3,600
Ending inventory value	$6,480	$1,500	$3,420	$11,400
A. Ending Inventory Value using FIFO
Use Beginning Inventory + Period costs
RM	DL	MOH	Total
Beginning inventory Units	10,000	10,000	10,000
Beginning inventory: Equivalent units	10,000	3,000	4,000
Period work to complete Beginning units	0%	70%	60%
Period equivalent units production
to complete beginning inventory	0	7,000	6,000
Units started	40,000	40,000	40,000
Units completed	44,000	44,000	44,000
Completed & started in period [less beginning]	34,000	34,000	34,000
= equivalent units for period completed	34,000	34,000	34,000
Ending Inventory	6,000	6,000	6,000
% complete	100%	50%	60%
Equivalent Enduing units	6,000	3,000	3,600
Work done in Period in Equivalent units
Beginning	0	7,000	6,000
Started & completed in period	34,000	34,000	34,000
Ending Equivalent units	6,000	3,000	3,600
Total Equivalent work in period	40,000	44,000	43,600
Cost incurred in period	$44,000	$22,440	$43,600	$110,040
FIFO cost per equivalent unit	$1.10	$0.51	$1.00	$2.61
Ending Inventory value [ Eq. Units x cost/ea.]	$6,600	$1,530	$3,600	$11,730

ACC220--Ch. 4---&P of &N---&D,&T---&F,&A---HCT

Ch5 Base Case

k
A	RBC Company
Item
1.	Planned Base Sales$s = P X Q
2.	Variable costs & expenses $s= Q X b.
3.	CM $s = contribution $s = 1.-2.
4.	Fixed costs & expenses [given data]
5.	3.-4. = Planned Operating Income
CMu P	$500.00	P	$500.00
Sell price per unit	$500.00	P	X b.	-$300.00	CMu	$200.00
Variable costs & expenses per unit	$300.00	b.	=CMu	$200.00	= CM%	40.0%
CMu = Contribution margin per unit	$200.00	C. = P-b
Planned Base case Quantity	500	Q.	Sales$s	$500.00	BE Qty.
Planned Base Sales$s	$250,000	e. = P X Q	X	500	Fixed	$80,000
Variable costs & expenses $s	$150,000	bx = b X Q	=	$250,000	/ CMu	$200.00
CM $s = contribution $s	$100,000	CM$s = e - bx OR CMu. X Q	BE Qty.	400
CM % = Contributiin ratio = Contribution %	40.0%	CM% = CMu/a. OR CM$s/e.	Var. cost $	500
X	$300.00	Safety Margin Units
Fixed costs & expenses	$80,000	Fxd.	=	$150,000	Op. Inc.	$20,000
Breakeven: Qty. (Units) = BE Qty	400	BE Qty= Fxd/CMu	/ CMu	$200.00
Breakeven: Sales$s	$200,000	BE Sales$ = BE Qty X P -OR- Fxd/ CM%	Safety Q	100
Safety Margin $s	$50,000	s1. = Sales $s-BE Sales$	Var. cost $	$300.00
Safety Qty. Margin Units	100	s2. = Q.- BE Qty	X	$500	Leverage ratio
=	$150,000	CM$s	$100,000	40.0%
Operating Income [above]	$20,000	/ Op. Inc.	$20,000	8.0%
Leverage Ratio	5.00	CM$ / Operating Income	1% ∆ CM	Ratio	5.00	5.00
= 5% ∆ Op.Income	$s	%s
Ratio = 5
B	Base Case	CH.5 PPT
a	SP unit	$500
b	Var.cost per unit	$300
c1	CM$/unit	$200	a-b	per unit
c2	CM%	40.0%	c1 / a	CM%
Fixed costs
d	Manufacturing	$50,000
e	S&A	$30,000
f	Total Fxd	$80,000	d+e
g	Sales Budget [Base]	500	units
C	h	Profit [contribution format IS [NOT GAAP}] at Target =	Budget = Base Case
per unit	$s	%
i	Sales	$500	$ 250,000	100.0%	Sales
j	Variable costs & Expense	$300	$ 150,000	60.0%	Variable costs & Expense
k	Contribution margin	$200	$ 100,000	+$200/$500=40%	CM% Contrib ratio $s	40.0%	Contribution margin
l	Fixed expenses	$80,000	$100,000/$250,000=40%	32.0%	Fixed expenses
m	Net income [Operating Income]	$20,000	8.0%	Net income [Operating Income]
D
$250,000
$450,000
Using CM%	Using CMu	$200,000	more
Fixed costs & expenses	$80,000	$180,000	to go from $20000 to $100000
+Target Profit	$100,000	CMu	$200.00	profit
Sunm to be covered by Sales	$180,000	Qty	900	change in profit	80,000
P	$500.00	at 40% CM%	40.0%
+CM%	40.0%	$450,000	change in sales $	200000
Target Sales	$450,000	Target Sales	per unit	$500
Change in unts	400
base	500
Needed Qty	900
E
Quantity	150	Target Profit	$3,000
Profit needed per unit	$20.00
Variable costs & expenses per unit	$300.00
Price neede to achieve desired profit	$320.00

ACC220---HCT---&P of &N---&D, &T---&F, &A

Ch.5 CVP PPT

A	Base Case	CH.5 PPT
a	SP unit	$500
b	Var.cost per unit	$300
c1	CM$/unit	$200	a-b	per unit	Effect of Δ Qty = 100
c2	CM%	40.0%	c1 / a	CM%	$500	SP unit
40.0%	CM%
Fixed costs	100	Δ Qty
d	Manufacturing	$50,000	$20,000	Δ CM$s = Δ NIs
e	S&A	$30,000
f	Total Fxd	$80,000	d+e
g	Sales Budget [Base]	500	units
B	h	Profit [contribution format IS] at Target =	Budget = Base Case
per unit	$s	%
i	Sales	$500	$ 250,000	g X a	100.0%	i / i
j	Variable costs & Expense	$300	$ 150,000	g X b	60.0%	j / i
k	Contribution margin	$200	$ 100,000	I - j	40.0%	k / i	+$200/$500=40%	CM% Contrib ratio $s
l	Fixed expenses	$80,000	f	32.0%	l / i	$100,000/$250,000=40%
m	Net income [Operating Income]	$20,000	k - l	8.0%	m / i
Back to PPT slide
What IF
C1	n	What IF #1
o	Sales up	40	units	Adv. Up	$10,000	40	540
Profit [contribution format IS] at What if #1 Qty.	500	$500
540	per unit	$s	%	540	$270,000
units	Sales	$500	$ 270,000	[was $250K]	100.0%	i / i	500	40	Qty
Variable costs & Expense	$300	$ 162,000	60.0%	j / i	540
Contribution margin	$200	$ 108,000	40.0%	k / i	CM%	$300
Fixed expenses	$90,000	[was 80,000]	33.3%	l / i	$80,000	$10,000	Fxd. Exp	$162,000
p	Net income [Operating Income]	$18,000	[was 20,000]	6.7%	m / i
40	units	Net change	Adv. Up	$10,000	Net change from the Base Case	Add Adv.
q	Net Change profit Incr/(Decr)	CMu X 40	$8,000	($2,000)	($10,000)	m - p
What IF
C2
What IF #2
r	Sales up	80	units	Var.cost/unit	$10
Profit [contribution format IS] at What if #2 Qty.
580	per unit	$s	%
units	Sales	$500	$ 290,000	100.0%	500	80	Qty
b + o	Variable costs & Expense	$310	$ 179,800	[was $300]	62.0%	$300	$10	$310
Contribution margin	$190	$ 110,200	38.0%	CM%	580
Fixed expenses	$80,000	27.6%	$179,800
s	Net income [Operating Income]	$30,200	10.4%
80	units	Net change	Var.cost/unit	$10
t	Net Change profit Incr/(Decr)	$200	$16,000	$10,200	($5,800)	p - q	580X$10
$200 X 80	o X c1	o[$s] X (o[qty]+g	Net change from the Base Case
What IF
C3	What IF #3	Qty	AP∆	Adv. Up
u	Sales up	150	units	Sp down	$20	Adv. Up	$15,000
Profit [contribution format IS] at What if #3 Qty.
per unit	$s	%
WAS $500	Sales	$480	$ 312,000	[was $500]	100.0%	500	150	Qty	650
Variable costs & Expense	$300	$ 195,000	62.5%	$500	($20)	SP unit	$ 480.00
Contribution margin	$180	$ 117,000	37.5%	CM%	$ 312,000
Fixed expenses	$95,000	[was $80,000]	30.4%	$80,000	$15,000	Fxd Exp
v	Net income [Operating Income]	$22,000	7.1%	$95,000
$480
150	units	Net change	Sp down	Adv up[	650 X $20	($13,000)	($300)	650
w	Net Change profit Incr/(Decr)	150 X $200	$30,000	$2,000	($13,000)	($15,000)	Adv. Up	$180	117000
r X c1	[r qty+ g] X r ∆SP	Net change from the Base Case
What IF
C4	500	75	575	$500
What IF #4	Qty	Commissions∆	Fxd Exp	$287,500
x	Sales up	75	units	Comm.unité	$15	Fxd Expê	$6,000
Profit [contribution format IS] at What if #3 Qty.	500	75	Qty	575
per unit	$s	%	$300	$15	Var.cost-Exp	$315
Sales	$500	$ 287,500	100.0%	$181,125
Variable costs & Expense	$315	$ 181,125	[was $300]	63.0%
Contribution margin	$185	$ 106,375	37.0%	CM%
Fixed expenses	$74,000	[was $80K]	25.7%	$80,000	($6,000)	Fxd	$74,000
y	Net income [Operating Income]	$32,375	11.3%
Net Change profit Incr/(Decr)	75	units	Net change	Comm.unité	Fxd Expê
$15,000	$12,375	$ (8,625)	$6,000
75X$200	575X$15	Net change from the Base Case
Back to slide 22
Breakeven:
D	Equation Method
Breakeven Units:	Breakeven$s
Total Fxd	$80,000	BE units	400
divide	CM$/unit	$200	SP unit	$500
BE units	400	BE Revenue	$ 200,000
OR	12000
65000
Total Fxd	$ 80,000	21600
CM%	40.0%	Contribution Margin Method	98600
BE Revenue	$ 200,000
526524
Proof: Profit= -0-	per unit	$s	5.34
Sales	$500	$ 200,000	at 400 units	100%
Variable costs & Expense	$300	$ 120,000	60%
Contribution margin	$200	$ 80,000	40%
Fixed expenses	$80,000
Net income [Operating Income]	$0	Profit @ zero = Breakeven
Back to slide 33
Target
Target Profit	$ 100,000
CM must cover the fixed expense AND the target profit
Data	SP unit	$500	To have a profit of	$ 100,000
Set	Var.cost per unit	$300	Total Fxd	$80,000
CM$/unit	$200	Sum	$ 180,000	Profit + Fxd. Costs & Expenses
CM%	40.0%
CM$/unit	$200
Target Units	900	$180000 / $200
Manufacturing	$50,000	@SP/unit	$450,000	Target revenue $s
S&A	$30,000
Total Fxd	$80,000	OR	CM%	40.0%	$180,000 / 40%
$ 450,000	Target revenue $s
Sales Budget [Base]	500	Base case	Proof	Target	per unit	$s
Sales	$500	$ 450,000	100%
Variable costs & Expense	$300	$ 270,000	60%
Contribution margin	$200	$ 180,000	40%
Fixed expenses	$80,000	18%
Net income [Operating Income]	$100,000	22%
Go to PPT slide 36
1.49
-0.36
1.13	76%
1300
1150.4424778761
1714.1592920354

ACC220---HCT---&P of &N---&D, &T---&F, &A

CH5-MixCVP

Sales Mix & CVP	Use an Average Uunit
Average	Ch.5 CVP
Bikes	Carts	Unit	ACC220
Units	500	300	800
Mix: Units	62.5%	37.5%	100.0%
Dollars	75.2%	24.8%	100.0%
Per Unit
Sales Price	$ 500.00	$ 275.00	$ 415.63	Weighted average used units	$332,500	$s
Variable cost per Unit	800	Units
Direct Materials	$ 200.00	$ 125.00	$ 171.88	Weighted average used units	$ 415.63	average
Variable LOH	$ 75.00	$ 60.00	$ 69.38	Weighted average used units
Total variable costs per unit	$ 275.00	$ 185.00	$ 241.25	Sum	$ 200.00	$ 125.00
Varable Sales & Admin. Per Unit	$ 25.00	$ 15.00	$ 21.25	Weighted average used units	500	300	800	Units
Total Variable Costs & expenses	$ 300.00	$ 200.00	$ 262.50	Sum	$ 100,000	$ 37,500	$ 137,500	$s
171.88	$s / uynits
Contribution margin per unit	$ 200.00	$ 75.00	$ 153.13	Difference
CM %	40.0%	27.3%	36.8%
Fixed Manufacturing Costs	$ 30,000	$ 20,000	per month
Fixed S&A Expenses	$ 50,000	per month
Added
P&L Brief (Month)	Bikes	Carts	Total Company	800
Sales	$250,000	$82,500	$332,500	100.0%	$ 153.13
Variable Costs & Expenses	$150,000	$60,000	$210,000	63.2%
CM $	$100,000	$22,500	$122,500	36.8%	$ 122,500
CM%	40.0%	27.3%	36.8%	36.842105263158%
36.800000000000%
Fixed Costs & Expenses [given]	$ 80,000	$ 20,000	$100,000	30.1%
$100,000
Operating Income	$20,000	$2,500	$22,500	6.8%	$22,500
Operating Leverage	5.00	9.00	5.44	5.44	1000000
368421.052631579
Breakeven
Fixed Costs & Expenses	$ 80,000	$ 20,000	$ 100,000	using	Mix % x BE sales $	$100,000	Fxd
CM%	40.0%	27.3%	36.8%	CM%	75.2%	24.8%	36.8%	Mix CM%
Breakeven	$204,082	$67,347	$271,429	Method	$271,429	$271,429	$ 271,429	divide
BE $-Mix	75.2%	24.8%	100%	$ 204,082	$ 67,347
Bikes	Carts	Bikes	Carts
Breakeven	81,633	18,367	100,000	$ 204,082	$ 67,347
Fixed Costs & Expenses	$ 80,000	$ 20,000	$ 100,000	using	40.0%	27.3%	CM %	40.0%	27.3%
CM$ per unit	$ 200.00	$ 75.00	$ 153.13	Units	$81,633	$18,367
Breakeven units	408	245	653	Method	100000
BE Sales $	$ 204,000	$ 67,375	$ 271,375	*	153
* did not use fractional units would be exactly the same with fractional units	653.06
Redo	480	SP ea.
580	Sales	650	575
310	Coad ea
1.49	190	CMu	180	185
1150	110200	CM$s	117000	106375
1713.5	80000	Fxd	95000	74000
30200	Net inc	22000	32375
20000	@ 500 Net Inc	20000	20000
1300	10200	Increase	2000	12375
1.13
1150.4424778761
2100
1.49
0.36
Sales	3129	3754.8	+20%
V	756	907.2	+20%
Cm	2373	2847.6	+20%
F	1300	1301	0%
NI	1073	1546.6	144.1%
OL	2.21	44.1%

ACC220---HCT---&P of &N---&D, &T---&F, &A

Ch.7 ABC

ACC220
Rider University
HCT--Ch 7.---ABC
How can we categorize Expense:
Fixed, variable
Product & period
Functional
Natural
Job or Project
this Chapter "Activity Based Costs" = ABC
Financial Reporting
Classic Brass	Example #1
Income Statement Brief [FAC]
Year Ended December 31, 2xx1
Sales	$ 775,000
Cost of goods sold	543,300
Gross Profit [margin]	$ 231,700
Selling and administrative expenses	200,585
Net operating income	$ 31,115
Categorization of Expense:	Example #1
Function ►►►►	Sales	Admin	Production	Distribution	Totals:	Variable	Fixed
Direct Materials	150,000	150,000	150,000	- 0
Production Direct labor	- 0	- 0	115,000	- 0	115,000	115,000	- 0
Salary Expense	25,000	17,000	36,000	9,000	87,000	12,000	75,000
Wage Expense	16,000	9,000	58,000	12,500	95,500	- 0	95,500
Commission expense	12,000	12,000	12,000	- 0
Fringe benefit expense	13,000	8,800	74,000	6,400	102,200	51,000	51,200
Travel & entertainment Exp.	7,000	2,600	700	- 0	10,300	2,000	8,300
Advertising expense	9,500	400	750	200	10,850	10,850
Natural	Building rent expense	3,200	3,600	12,500	4,800	24,100	24,100
Expense	Equipment lease expense	400	2,300	6,900	2,230	11,830	11,830
Supply expense	1,900	1,400	2,300	600	6,200	2,300	3,900
Contract labor Expense	- 0	- 0	34,000	3,320	37,320	34,000	3,320
Warranty services	3,600	450	2,000	300	6,350	4,000	2,350
Professional services	1,900	2,150	3,200	- 0	7,250	7,250
Bank charges/fees	- 0	200	- 0	- 0	200	200
Depreciation expense	2,200	1,975	44,000	11,000	59,175	59,175
Miscellaneous expense	1,400	1,100	3,950	2,160	8,610	215	8,395
Total	97,100	50,975	543,300	52,510	743,885	382,515	361,370
Period	Period	PRODUCT	Period	200,585
200,585
Job ►►►►	Job AB1	Job AB2	Job AB3	Totals	543,300	743,885
Salary Expense	12,000	3,000	- 0	15,000
Wage Expense	2,300	6,200	- 0	8,500
Production Direct labor	21,000	23,000	66,000	110,000
Fringe benefit expense	6,500	9,100	2,200	17,800
Commission expense	2,500	- 0	1,300	3,800
Advertising expense	- 0	- 0	- 0	- 0
Building rent expense	- 0	- 0	- 0	- 0
Equipment lease expense	- 0	- 0	2,150	2,150
Office supply expense	- 0	- 0	- 0	- 0
Contract labor Expense	1,500	2,650	11,500	15,650
Travel/entertainment exp.	250	350	600	1,200
Professional services	1,110	850	1,950	3,910
Bank charges/fees	- 0	- 0	- 0	- 0
Depreciation expense	- 0	- 0	- 0	- 0
Miscellaneous expense	875	625	325	1,825
Totals:	48,035	45,775	86,025	179,835	Not all assigned to jobs
Categorization of Expense: Functional:
Examples of Functional Areas
Manufacturing	Sales & Marketing	General & Administrative
Mfg. Admin.	Sales Admin	Office of CEO
Process Engineering	Field sales	Finance
Warehouse'	Product development	Human Resources
Material handling	Advertising	General Counsel [legal]
Testing	Distribution/warehouse
Quality Assurance & control
Purchasing [Plant Level]
Line Supervision	Operations; [non-manufacturing]
Equipment maintenance	Operations Admin
Plant Human Resources	Corporate purchasing
Plant maintenance
Many others - can vary by company
Excel A
Baxter Battery Company
Income Statement	GAAP
Year Ended December 31, 2xx1
Sales	50,000,000
Cost of goods sold
Direct	Direct materials	15,000,000
Direct	Direct labor	12,000,000
Manufacturing overhead	14,000,000	41,000,000	no change in inventory
Gross margin [Gross Profit]	9,000,000
Selling and administrative expenses
Direct	Shipping expenses	3,000,000	Each product line has its own warehouse - shipping charges are freight & direct to product lines
Marketing expenses	2,000,000	2/3 Product A, 1/3 Product B	This analysis not shown here
General administrative expenses	6,000,000	11,000,000
Operating loss	(2,000,000)	LOSS
Expense [& Cost]
Direct materials	15,000,000	Traced through Cost System to products
Direct labor	12,000,000	Traced through Cost System to products
Manufacturing overhead	14,000,000	Traditional use manufacturing basis to product chose not to send with products
Shipping expenses	3,000,000	Traced to Orders/Customer directly through products
Marketing expenses	2,000,000
General administrative expenses	6,000,000	52,000,000	30,000,000	Cost Sys.	22,000,000
total	Direct to Products	Through ABC Pools
To be put into ABC pools to be allocated to Activities	22,000,000	ABC Pools
Direct trace	30,000,000
Overhead Costs at Baxter Battery	Natural Expense
(Manufacturing and Nonmanufacturing)	& Function
Production Department
Indirect factory wages	6,000,000	Data Given
Factory equipment depreciation	3,500,000
Factory utilities	2,500,000
Factory building lease	2,000,000	14,000,000	63.6%
General Administrative Department	9 expense categories to be allocated
Administrative wages and salaries	4,000,000	Functional Expense into function natural Expense withinh Function
Office equipment depreciation	900,000
Administrative building lease	1,100,000	6,000,000
Marketing Department
Marketing wages and salaries	1,500,000	8,000,000
Selling expenses	500,000	2,000,000	36.4%
Total overhead costs for allocation	22,000,000
POOLS	[2]	Assign Overhead Costs to Activity Cost Pools
Activity Cost Pools	Order Size* [Machine Hours]	Customer Relations [# OF CUSTOMERS]	Sustaining
[1] Define Pools →→→→	Customer Orders	Design Changes	Other Not allocated	Total
Production Department
Indirect factory wages	30%	30%	20%	10%	10%	100%
Factory equipment depreciation	20%	10%	60%	0%	10%	100%
Factory utilities	0%	10%	60%	0%	30%	100%
Factory building lease	0%	0%	0%	0%	100%	100%
General Administrative Department
Administrative wages and salaries	30%	10%	10%	30%	20%	100%
Office equipment depreciation	30%	10%	0%	20%	40%	100%
Administrative building lease	0%	0%	0%	0%	100%	100%
Marketing Department	Results of ABC study to determine allocation levels
Marketing wages and salaries	30%	10%	0%	50%	10%	100%
Selling expenses	20%	0%	0%	70%	10%	100%
* ORDER SIZE = PROXY FOR MACHINE HOURS
Activity Cost Pools	Customer Relations [# OF CUSTOMERS]	Sustaining
Multiply Amounts by % =	Customer Orders	Design changes	Order Size* Mach.Hrs	Other Not allocated	Total	Product of %s above X Total Amounts for department
Production Department	30% X $6000,000	6,000,000
Indirect factory wages	1,800,000	1,800,000	1,200,000	600,000	600,000	6,000,000	Manufacturing overhead	3,500,000
20%X$3500K	Factory equipment depreciation	700,000	350,000	2,100,000	- 0	350,000	3,500,000	14,000,000	2,500,000
Factory utilities	- 0	250,000	1,500,000	- 0	750,000	2,500,000	3,700,000	unassigned ABC	2,000,000
Factory building lease	- 0	- 0	- 0	- 0	2,000,000	2,000,000	26.4%	14,000,000	All unassigned
General Administrative Department	- 0	- 0	- 0	- 0	- 0	3,700,000
Administrative wages and salaries	1,200,000	400,000	400,000	1,200,000	800,000	4,000,000	General Administrative Department	2,260,000
Office equipment depreciation	270,000	90,000	- 0	180,000	360,000	900,000	6,000,000	37.7%	200,000
Administrative building lease	- 0	- 0	- 0	- 0	1,100,000	1,100,000	2,260,000	unassigned ABC	6,160,000
Marketing Department	unassigned ABC
Marketing wages and salaries	450,000	150,000	- 0	750,000	150,000	1,500,000	Marketing Department	200,000	10.0%
Selling expenses	100,000	- 0	- 0	350,000	50,000	500,000	2,000,000	unassigned ABC
Total	DOLLARS IN EACH POOL	4,520,000	3,040,000	5,200,000	3,080,000	6,160,000	22,000,000
Money is in the pool	Given dataè
Activity Level [3]	Customer	Sustaining
Pool [1a]	Customer Orders	Design changes	Order Size	Customer Relations	Other Not allocated	Total
Pool $s [1a] from above	4,520,000	3,040,000	5,200,000	3,080,000	6,160,000	22,000,000
ACTIVITY Unit [1b]	Customer Orders	Design changes	Machine Hours	Number of Customers	Not allocated
Allocated	15,840,000
Rate: Activity Level [3]
ACTIVITY Unit [1b]	Customer Orders	Design changes	Machine Hours	Number of Customer	Not allocated	Given dataé
Z =	ACTIVITY Units TO ALLOCATE [1b]	10,000	4,000	800,000	2,000	N/A	◄◄Given	Hrs.	Units	Extd. Hrs.	ABC rate	$ 6.50
$Amt. per Activity unit [3]	$ 452.00	$ 760.00	$ 6.50	$ 1,540.00	N/A	----RATES----	-B-	0.8	400000	320000	Machine Hrs	448
Denominator - Qty. of the pool activity = Z	Order size as Proxy	-A-	0.6	800000	480000	800000	Assigned $s	$ 2,912
Summary
Allocation ABC	Direct or otherwise traced
Direct materials	15,000,000	Traced as per data set above
Direct labor	12,000,000	Traced as per data set above
Manufacturing overhead	14,000,000
Shipping expenses	3,000,000	Traced as per data set above
Marketing expenses	2,000,000
General administrative expenses	6,000,000	Total Expenses
Total Traced via ABC	22,000,000	30,000,000	52,000,000	22,000,000
Not traced to ABC object	(6,160,000)	ABC Pools not Mfg	Mfg OH	Not to ABC=Sustaining
To ABC Objects	15,840,000	15,840,000	30.5%	in ABC pools	8.4%	63.6%	28.0%
------Product Lines------
Pools	$ in Pool	Activity Measure	Qty of Act. Measure	Rate	Sure Starts [A]	Long Lifes [B]	Total	$22,000,000	ABC Total
Customer Orders	4,520,000	Customer Orders	10,000	$ 452.00	4,000	6,000	10,000	($6,160,000)	Sustaining
Design changes	3,040,000	Design changes	4,000	$ 760.00	- 0	4,000	4,000	$15,840,000	To ABC Objects
Order Size	5,200,000	Machine Hours	800,000	$ 6.50	480,000	320,000	800,000	($3,080,000)	Not to Products [Cust.Serv.]
Customer Relations	3,080,000	Number of Customers	2,000	$ 1,540.00	Measured Actual	Measured Actual	From data set given	$12,760,000	To Products
15,840,000	(6,160,000)	Not in ABC Pools	22,000,000	Sum ABC analysis
Excel B
[A] SureStart	(a)	(b)	(a) × (b)
Activity Cost Pools	Activity Rate	Activity	ABC Cost
Customer orders	$ 452.00	4,000	$ 1,808,000
Design changes	760.00	- 0	- 0
Order size [object is Product]	6.50	480,000	3,120,000	to Sure start
Total	Measured Actual	$ 4,928,000	31.1%
5,200,000	Order size
[B] LongLife	(a)	(b)	(a) × (b)
Activity Cost Pools	Activity Rate	Activity	ABC Cost	$ 4,928,000
Customer orders	$ 452.00	6,000	$ 2,712,000	$ 7,832,000	A	B
Design changes	760.00	4,000	3,040,000	$ 12,760,000	36	48	Min
Order size {object is Product}	6.50	320,000	2,080,000	to Long Life	15,840,000	total to objects	800000	400000	Qty
Total	Measured Actual	$ 7,832,000	49.4%	3,080,000	to objects / not products	$ 1,808,000	Customer Orders	28800000	19200000	Min
$ 12,760,000	80.6%	total ABC to Products	$ 2,712,000	4,520,000	480000	320000
Each	Assignable costs	$ 3,080,000	to customers	$ 4,520,000	100%	Hrs	Hrs
$ 452.00	Customer Orders	4,520,000	Product A	4,928,000	Order
$ 760.00	Design changes	3,040,000	Product B	7,832,000	# designs	0.00	Design changes
$ 6.50	Order Size	5,200,000	NO	3,040,000	3,040,000
SUM	12,760,000	12,760,000	Cust. Relations	3,040,000	100%
$3,080,000
Cust. basis-Not assignable to Prod.A or B	3,080,000	Product A	480,000	Mach.Hrs.	to Products	$ 3,120,000	Order Size
Product B	320,000	Mach.Hrs.	$ 2,080,000	5,200,000
Rate =	$ 6.50	$ 5,200,000	100%
ABC P&L	Sure Starts [A]	Long Lifes [B]	Total	From:	Excel C
Sales	31,300,000	18,700,000	50,000,000	31,300,000	18,700,000
Direct costs --- Direct to product	SureStart	LongLife
Direct material	9,000,000	6,000,000	15,000,000	Cost system	data from cost system	Product line	A	B	Total
Direct labor	7,000,000	5,000,000	12,000,000	Cost system	data from cost system	Quantity	800,000	400,000	1,200,000	A/seach	B/each
Shipping [ Direct to Prod.line]	2,000,000	1,000,000	3,000,000	Each product line has its own warehouse - shipping charges are freight & direct to product lines	Sales	$31,300,000	$18,700,000	$50,000,000	$39	$47
Subtotal	18,000,000	12,000,000	30,000,000	Given dataÚ
Contrib $s	13,300,000	6,700,000	20,000,000	Varable traced	DirectCosts through cost system
Contrib %	42%	36%	40%	with ABC costs	Material;	$9,000,000	$6,000,000	$15,000,000	$11	$15
Activity Pool Costs -Product Related:	ABC Assigned	DL	$7,000,000	$5,000,000	$12,000,000	$9	$13
Order Size-Machine Hours	3,120,000	2,080,000	5,200,000	Shipping	$2,000,000	$1,000,000	$3,000,000	$3	$3
Customer Orders	1,808,000	2,712,000	4,520,000	ABC	Sum	$18,000,000	$12,000,000	$30,000,000	$23	$30
Design changes	- 0	3,040,000	3,040,000	ABC
Subtotal	4,928,000	7,832,000	12,760,000	ABC	Contribution margin	$13,300,000	$6,700,000	$20,000,000	$17	$17
ABC Traceable/Assigned Expenses/Costs	42.5%	35.8%	40.0%	42.5%	35.8%
Product Margin %%% ********	26.7%	-6.1%	14%
Product Margin $$$ ********	8,372,000	(1,132,000)	7,240,000	********
ABC Unassigned to Product Lines	6,160,000	Unallocated	6,160,000	not in a ABC pool
***	ABC # of Customers 'Customer common to both A & B	3,080,000	ABC/Product	çin a pool but not to products
Operating Income [Loss]	(2,000,000)
+ Customer Relations 3080000 Number of Customers
*** while can ABC to an activity can't get back to Product
GAAP/Traditional/FAC	Sure Starts [A]	Long Lifes [B]	Total	From:	Excel D
Sales	31,300,000	18,700,000	50,000,000
Cost of Goods Sold [no ∆ in inventory]	No change in inventory	Productcost VS. Period costs
Direct material	9,000,000	6,000,000	15,000,000	Cost system	Same as ABC
Direct labor	7,000,000	5,000,000	12,000,000	Cost system	Same as ABC
Manufacturing	8,400,000	5,600,000	14,000,000	Cost system
Total CoGS	24,400,000	16,600,000	41,000,000	Total manufacturing OH allocated via Mach.Hrs
14,000,000	Product A	480000	60.0%
Gross Profit // Gross Margin	6,900,000	2,100,000	9,000,000	800,000	Product B	320000	40.0%
22%	11%	18%	$ 17.50	Sum	800,000	100.0%
Mach.Hrs.	$3,000,000	Shipping expenses
Selling and administrative expenses	11,000,000	all non-manufacturing expenses	$2,000,000	Marketing expenses
$6,000,000	General administrative expenses
Operating Income [Loss]	(2,000,000)	$11,000,000
Variable/Contribution	Sure Starts [A]	Long Lifes [B]	Total	From:	Var. Mfg. OH
Sales	31,300,000	18,700,000	50,000,000	Var.Mfg. OH	A	B
No change in inventory	$ 17.50
Variable costs & expenses	45%
Direct material	9,000,000	6,000,000	15,000,000	Cost system	Same as GAAP/ABC	$ 7.88	480000	320000
Direct labor	7,000,000	5,000,000	12,000,000	Cost system	Same as GAAP/ABC	2/3 Product A, 1/3 Product B	$ 3,780,000	$ 2,520,000	$7,500	+
Shipping [ Direct to Prod.line]	2,000,000	1,000,000	3,000,000	45% is a Given %	$6,700	+
Manufacturing: 45% variable	3,780,000	2,520,000	6,300,000	Cost system	Prod. Cost	From GAAP	8,400,000	5,600,000	$1,700	+
Variable Sell/Admin 8% of sales	2,504,000	1,496,000	4,000,000	8% is a Given % Commission	Sum	45%	45%	$15,900	=
Total Variable Costs & expenses	24,284,000	16,016,000	40,300,000	6,300,000	3,780,000	2,520,000
Contribution Margin	7,016,000	2,684,000	9,700,000	Shipping [ Direct to Prod.line]	3,000,000	V
22.4%	14.4%	19.4%	22,000,000	Total overhead costs for allocation	Variable Sell/Admin 8% of sales	4,000,000	V
Fixed	(6,300,000)	Manufacturing: 45% variable	General administrative expenses	4,000,000	F
Manufacturing	Fixed	7,700,000	(4,000,000)	Variable Sell/Admin 8% of sales	11,000,000
General administrative expenses	Fixed	4,000,000	11,700,000	Fixed
V Mfg OH	Fxd. Mfg OH	Total Mfg OH	same as
Operating Income [Loss]	(2,000,000)	6,300,000	7,700,000	14,000,000	above
Comparison	Sure Starts [A]	Long Lifes [B]	Total
Gross profit/Gross Margin/Contribution Margin
ABC P&L	8,372,000	(1,132,000)	7,240,000
GAAP/Traditional/FAC	6,900,000	2,100,000	9,000,000
Variable/Contribution	7,016,000	2,684,000	9,700,000
% of Sales
ABC P&L	26.7%	-6.1%	14.5%	Product Margin
GAAP/Traditional/FAC	22.0%	11.2%	18.0%	Gross Profit
Variable/Contribution	22.4%	14.4%	19.4%	Contrib.Margin
% of Total
ABC P&L	115.6%	-15.6%	100.0%
GAAP/Traditional/FAC	76.7%	23.3%	100.0%
Variable/Contribution	72.3%	27.7%	100.0%
back 49

HCT---&P of &N---&D,&T---&F,&A

Business Study to determine units

an objection to ABC is forcing a distribution

an objection to ABC is treating fixed as variable

Given data

1+2+3

Ch.8

Doing calendar Q2
Doing calendar Q2
Doing calendar Q2
Doing calendar Q2
Doing calendar Q2
Doing calendar Q2
Jan	Feb	Mar	Apr	May	Jun	Jul	Aug	Sep	Oct
Units Sales	20,000	50,000	30,000	25,000	15,000	32,000	36,000	42,000	66,000
Price each	$ 10.00	$ 10.00	$ 10.00	$ 10.00	$ 10.00	$ 10.00	250,000
Budgeted Sales	200,000	500,000	300,000	250,000	150,000	320,000	150,000
320,000
Period ending cash	CASH	90,000	30%	uncollected	720,000	Qtr. Sales
Collections	75,000	25%/30% of end Q1 A/R will be collected
70%	of current period	175,000	105,000	224,000
25%	of prior period	62,500	37,500
Sum	Cash collected	250,000	167,500	261,500	679,000	96000	Q2 end A/R @30%	679,000
Looking at Q2
Ending inventory units	20%	Mar	Apr	May	Jun	Jul	Aug
Units Sales	30,000	25,000	15,000	32,000	36,000	42,000
Budget Ending Inventory	4,000	3,000	6,400	7,200	8,400	[20% next mo. Sales]
Sales + Ending	Given	28,000	21,400	39,200	44,400
Less Beginning = prior month-end	(4,000)	(3,000)	(6,400)	(7,200)
= Unit Production	24,000	18,400	32,800	37,200
Raw Matls.
to
FG
in this
Example
No subassy.
Storage
in Inventory
Cost/Lb	Cost/UnitFG
Quantity per unit in Lbs.	5.00	$ 0.40	$ 2.00	Ending Inventory % next month	10%	Looking at Q2
Mar	Apr	May	Jun	Jul
= Unit Production	- 0	24,000	18,400	32,800	37,200	ççFrom Production budget Excel B Above
Required for Production/Lbs	- 0	120,000	92,000	164,000	186,000
$s Into FG for Production	$0.40	$ 48,000	$ 36,800	$ 65,600	$ 150,400	Qtr. Total
Budget Ending Inventory	13,000	9,200	16,400	18,600	10% of following Month	18,600
Sales + Ending	129,200	108,400	182,600	$ 0.40	RM
Less Beginning = prior month-end	(13,000)	(9,200)	(16,400)	7,440	End $s
Qty. Purchase [additions] of Raw material	116,200	99,200	166,200	Material budget
$s. Purchase of Raw material	$ 46,480	$ 39,680	$ 66,480	Material budget	$ 0.40	per lb.
Apr	Apr.
CASH	Ending A/P	$ 12,000	$ 12,000	Beg	$ 12,000
Cr. To A/P = purchases	$ 46,480	$ 39,680	$ 66,480	$ 46,480	Add	$ 46,480
Pay 50% current [given company policy]	$ 23,240	$ 19,840	$ 33,240	End Q2	1/2 April	$ (23,240)	Paid	$ (35,240)
Pay prior	$ 12,000	$ 23,240	$ 19,840	Cash budget	$ 35,240	$ 23,240
Total paid	$ 35,240	$ 43,080	$ 53,080	Cash budget	$ 131,400	Paid	A/P	Ending
Ending A/P [Beginning + Additions - payments]	$ 23,240	$ 19,840	$ 33,240	Qtr. Total
Guaranteed	Hours	Rate
Payment for quarter	1500	$ 10.00
Required Hrs. per unit	0.05	3	minutes
DL$s. per unit	$ 0.50	700
used for ending Q2 inventory
For this Example no timing difference between earned & Paid
Apr	May	Jun	Qtr sum
From Prodn. Sched.	= Unit Production	24,000	18,400	32,800	75,200
HRs of Prodctn. at Required per unit of 0.05 hrs. ea.	1,200	920	1,640	3,760
DL Cost of production into units at 10 per Hr	$ 12,000	$ 9,200	$ 16,400	37,600
unfavorable variance of	$ 8,800
Hrs = > Required or 1500 by company policy	Hrs paid	1,500	1,500	1,640	4,640	880	Hours
$s paid	$ 15,000	$ 15,000	$ 16,400	46,400
ADDED
Productivity at budget earned HRs/paid HRs	80%	61%	100%	Spend > Used by	$ 8,800	into CoGS
*******
1650
8250
Variable OH $s per HR	$ 20.00	Given: rate is per DL hr.	45000
Required Hrs. per unit	0.05	Hrs. per unit	3	minutes	53250
Variable OH $s per unit	$ 1.00
Fxd. MOH per month	$50,000
Non cash MOH	$20,000
Cash Mfg. OH	$30,000
Actual Overhead rates NOT predetermined rates
Apr	May	Jun	Qtr. Sum	Required Hrs. per unit	0.05
= Unit Production	24,000	18,400	32,800	75,200	Fxd. OH spending	$50,000	$50,000	$50,000
# Hrs.	1,200	920	1,640
HRs of Prodctn. at Required per unit of 0.05 hrs. ea.	1,200	920	1,640	3,760	per Hr.	41.67	54.35	30.49
VOH Cost of production at $20 per DL Hr	$24,000	$18,400	$32,800	per unit	2.08	2.72	1.52
Fixed manufacturing OH per period	$50,000	$50,000	$50,000	$ 150,000	ADDED	$ 150,000
Fxd. + Var. Mfg. OH	Total MOH per Month	$74,000	$68,400	$82,800	$ 225,200	$$$$	QTY	$ 225,200	75,200
ACT.Fxd. Mfg. OH rate/hr.	$ 41.67	$ 54.35	$ 30.49	39.89	$ 150,000	3,760	3,760	$1.99
Fxd. Mfg. OH unit	$ 2.08	$ 2.72	$ 1.52	$ 1.99	0.05	hrs. per unit	59.89
Fxd. Mfg. OH rate/hr.	Quarter averageò	Apr	May	Jun	per Hr.
Budgeted MOH rate per period Fxd.+ Var.	61.67	74.35	50.49	59.89	Fxd + Var	$ 41.67	$ 54.35	$ 30.49	Fxd rate
$ 20.00	$ 20.00	$ 20.00	V. Rate
0	Non-cash expense	($20,000)	($20,000)	($20,000)	$ 61.67	$ 74.35	$ 50.49
Cash MOH	$ 54,000	$ 48,400	$ 62,800	$ 165,200
Qtr Total
Product Cost using Qtr. Average Fxd.unit	Variable	Fixed
0.40	$5.00	Materials	$ 2.00	5 lbs	$0.40/lb
0.05	$10.00	DL	$ 0.50	This example: Std. Hrs./unit	$ 10
0.05	$20.00	V Mfg. OH	$ 1.00	0.05
0.05	$59.89	F MFG. OH	1.99	This example: Actual rate for Qtr.	$ 0.50
Sum	$ 3.50	$ 1.99
$ 5.49	average per unit for Qtr
Product cost without labor variance
CoGS chart	Qty	4,000	No WIP in Example
given	$ 5.49	$ 21,979	Beginning Materials
Excel C	Beginning FG	$ 22,000	4,000	Excel B	Beginning FG
For Inome Statement
+ Input addtions
Excel C	Materials	$ 150,400	CoGS =
Excel D	Labor	$ 46,400	with variance	+ Beginning
Excel E	Overhead	$ 225,200	75,200	Excel B	+ Additions
Total	$ 422,000	- Ending	Ending Inventory Q2	Direct Materials
Average per FG unit	5.49	Excel E	= CoGS
$39,562	$ 0.40	per lb.
- Ending	7,200	(39,562)	7,200	Excel B	End Qty.	7,200	FG	18,600	# lbs.
= CoGS	$ 404,438	Each	5.49	End $s	RM	$ 7,440	$47,002
$47,002	total Inv.
Variable unit period cost	$ 0.50
Fixed period costs	$ 70,000
Non cash expenses	$ 10,000
Cash Expense	$ 60,000
Selling and Administrative
Period Costs
Apr	May	Jun	Qtr. Sum
Units Sales	25,000	15,000	32,000	72,000
Variable Period costs/unit sold	$ 0.50	$ 0.50	$ 0.50
Variable unit period expenses	12,500	7,500	16,000	36,000
Fixed Period Expense	$ 70,000	$ 70,000	$ 70,000	210,000
Total	82,500	77,500	86,000	246,000	to Income statement
Non cash portion	(10,000)	(10,000)	(10,000)	(30,000)
Cash Period Expense	72,500	67,500	76,000	216,000	CASH
Example uses the Direct Method of Receipts and Disbusrsement
for Cash Budgets; large companies use the Balance Ssheet Indirect method
We'll assume the debt exists for full quarter; borrowing may be drwn down as needed
and result is different result
Target Minimum Cash Balance	$10,000	given
Quarter June 30
Beginning Cash Balance	$ 40,000	Given
+ Collections	$ 679,000	Excel A
Cash available	$ 719,000
Cash disbursements:
Materials	$ 131,400	Excel C
Direct labor	$ 46,400	Excel D
Mfg. Overhead=Fxd. + Var - Non-cash	$ 165,200	Excel E	without interest	$ 35,000	Positive
Selling/Admin.	$ 216,000	Excel G	Borrowing	$ 19,000	Average borrowing given
Equipment Purchased	$ 125,000	Given data	# months	3	Could compute with Beginning Balance
Interest	$ 285	6%	interest	$ 285	6%	B + added/reduced
Total	$ 684,285
Management judged Cash balance adequate to operate did not pay down debt
Cash Balance	$ 34,715	Could change Cash or change borrowing
Debt on BS	$ - 0	Excel K Below	Can balance BS with CASH or With Borrowing
Royal Company
Statement of Income
QE: 6/30	GAAP, FAC	18,600
Sales	720,000	100.0%	Excel A
Less: Cost of Goods Sold	$ 404,438	56.2%	Excel F
Gross Margin	$ 315,562	43.8%
Selling & Admin, Expense	246,000	34.2%	Excel G
Operating Income	69,562	9.7%
Interest Expense	$ 285	0.0%	Excel H
Income before taxes	$ 69,847	9.7%
RM	7,440
FG	39,562
Total Inv	47,002
Beg Cash	$ 40,000
Royal Company	Period Cash	$ 34,715
Month ending 6/30	$ 74,715
Balance Sheet
Assets	debt to Balance
Cash	$ 74,715	Excel H	Keep Cash	392,717	Assets
sold	320,000	Accounts receivable	96,000	Excel A	$ (33,240)
70% collected	(224,000)	Inventory	47,002	Excel F	$ (200,000)
30% not collected	96,000	Land	50,000	Given	$ (156,422)
Equipment	125,000	Given	3,055
Statement of Retained Earnings	Total assets	392,717
Beginning	$ 86,575	Given
less: Dividends	0	Liabilities & Stockholders' Equity
Plus: Income	$ 69,847	Accounts Payable	$ 33,240	Excel C
Ending Retained Earnings	$ 156,422	Long term debt	$ 3,055	Excel H	Keep Cash	Back into to Balance
Common stock	$ 200,000	Given	NOT = AVERAGE DEBT
Retained Earnings	$ 156,422	ççright
Total Liabilities & Stockholders' Equity	$ 392,717
Minimize cash pay debt: balance with cash	Cash	$ 71,660	Accounts Payable	$ 33,240	debt to Balance
$ 74,715	Accounts receivable	$ 96,000	Common stock	$ 200,000	$ 389,662	assets
Debt to -0-	$ (3,055)	Inventory	$ 47,002	Retained Earnings	$ 156,422	$ (33,240)
$ 71,660	Land	$ 50,000	$ 389,662	$ (200,000)
Above	392,717	Equipment	$ 125,000	Debt to balance	$ - 0	$ (156,422)	pay down debt to -0-
Debt to -0-	$ (3,055)	$ 389,662	$ 389,662	$ - 0
389,662

ACC220===HCT---&P of &N---&D, &T---&F, &A

Excel A Sales Budget

Excel D Direct Labor

Excel E Manufacturing Overhead

Excel F CoGS

Excel G S&A Expense

Excel B FG budget

Excel H Cash

Excel I Statement of Income

Excel J // Balance Sheet

Excel C Materials

invested capital

Average Cost Per Unit/ Qtr

Ch.9 Flex A

STATIC Budget	1
For the Period Ended June 30
Static
Planning	òSell Price Each
Budget	$ 75.00	Reminder Y = a + bX
Wages and salaries
Number of units (Q)	500	Characteristics	bX
Fixed	Variable each	Basis
Revenue	$ 37,500	$ - 0	$ 75	units sold	Y =	a	+ b	X
Expenses:	ê	ê	ê	ê
Wages and salaries	$ 20,000	$ 5,000	$ 30	units sold	$ 20,000	$ 5,000	500	$30	$15,000
By	Gasoline and supplies	4,500	$ - 0	$ 9	units sold	$ 4,500	$ - 0	500	$9	$4,500
Natural	Equipment maintenance	1,500	$ - 0	$ 3	units sold	$ 1,500	$ - 0	500	$3	$1,500
Expense	Office and shop utilities	1,000	$ 1,000	$ - 0
in	Office and shop rent	2,000	$ 2,000	$ - 0
this	Equipment Depreciation	2,500	$ 2,500	$ - 0
Example	Insurance	1,000	$ 1,000	$ - 0
Total expenses	32,500
Net operating income	$ 5,000
ACTUAL	1
For the Period Ended June 30
Actual
Results
$ 43,000
Number of units	Driver	550	Actual	Not	550	Fav
$78.18	$75.00	$78.18	$3.18	550
Revenue	$ 43,000	SP Each	$1,750
Expenses:
Wages and salaries	$ 23,500	given from Financials	Net operating income
Gasoline and supplies	5,100	given from Financials	Budget	$5,000
Equipment maintenance	1,300	given from Financials	Actual	$6,450
Office and shop utilities	950	given from Financials	Fav Variance	$1,450
Office and shop rent	2,000	given from Financials
Equipment Depreciation	2,500	given from Financials
Insurance	1,200	given from Financials
Total expenses	36,550
Net operating income	$ 6,450
Variance from Budget	1
Favorable	Sales [units or price each], Revenue Increased
Expenses Costs decrease
Unfavorable: Sales decrease
Expenses/costs increase
Actual V. Static	1
Total
For the Period Ended June 30	Differences
Planning	Actual
Budget	Results	Variances
F=favorable
U= Unfav
Number of units (Q)	500	550	50	F
Revenue	$ 37,500	$ 43,000	$ 5,500	F
Expenses:
Wages and salaries	$ 20,000	$ 23,500	$ 3,500	U
Gasoline and supplies	4,500	5,100	600	U
Equipment maintenance	1,500	1,300	200	F
Office and shop utilities	1,000	950	50	F
Office and shop rent	2,000	2,000	- 0
Equipment Depreciation	2,500	2,500	- 0
Insurance	1,000	1,200	200	U
Total expenses	32,500	36,550	4,050	U
Net operating income	$ 5,000	$ 6,450	$ 1,450	F
DO ALL "Unfavorable" indicate poor performance
NO	1
PPT
STATIC v. FLEX Budget
For the Period Ended June 30	2
Single Driver = Units Sold	STATIC	FLEX'd
STATIC	Planning	Flexible
Planning	Budget	Budget
sell each
Number of units (Q)	$ 75	500	550	Budget Characteristics
Fixed	Variable Each	Basis	Actual	Budget	Flex'd
Revenue	$ 37,500	$ 41,250	$0	$75	units sold	550	X	$75	=	41,250
Expenses:
Mixed	Wages and salaries	$ 20,000	$ 21,500	$5,000	$30	units sold
Var	Gasoline and supplies	4,500	4,950	$0	$9	units sold	550	X	$9	=	$4,950	Var. only
Var	Equipment maintenance	1,500	1,650	$0	$3	units sold	550	X	$3	=	$1,650	Var. only
No variable	Office and shop utilities	1,000	1,000	$1,000	$0	Y =	a	+ b	X
No variable	Office and shop rent	2,000	2,000	$2,000	$0	$ 20,000	$ 5,000	500	$30	Fxd.
No variable	Equipment Depreciation	2,500	2,500	$2,500	$0	Flex'd	Fxd.	550	&
No variable	Insurance	1,000	1,000	$1,000	$0	$ 21,500	$ 5,000	$ 16,500	flexed	Variable
Total expenses	32,500	34,600	y	a	bX
Net operating income	$ 5,000	$ 6,650	$ 1,650	←←Δ due to Volume =	Variable
STATIC v. FLEX Budget
For the Period Ended June 30	3
Single Driver = Units Sold	Fav/(Unfav)
Planning	Flexible	Activity	Budget static	$ 5,000
Budget	Budget	or Volume	Flex	$ 6,650	$ 1,650	Fav due to volume
Variance	Actual	$ 6,450	$ (200)	Unfav due to Spending/Performance
Number of units (Q)	500	550	50	Fav	$ 1,450	Variance Actual to Budget
Revenue	$ 37,500	$ 41,250	$ 3,750	Fav	Driver	550	100% var.
Expenses:	Variable each	Qty.	bX	a
Wages and salaries	$ 20,000	$ 21,500	$ (1,500)	Unfav	$30	550	16,500	$ 5,000	Mxd. Fxd. & Var.
Gasoline and supplies	4,500	4,950	$ (450)	Unfav	$9	550	4,950	$ - 0	100%
Equipment maintenance	1,500	1,650	$ (150)	Unfav	$3	550	1,650	$ - 0	Var.
Office and shop utilities	1,000	1,000	$ - 0	--	100% Fxd.
Office and shop rent	2,000	2,000	$ - 0	--	100% Fxd.
Equipment Depreciation	2,500	2,500	$ - 0	--	100% Fxd.
Insurance	1,000	1,000	$ - 0	--	100% Fxd.
Total expenses	32,500	34,600	(2,100)	Unfav
Net operating income	$ 5,000	$ 6,650	$ 1,650	Fav
Single Driver = Units Sold	Due to
STATIC v. FLEX Budget	3	Volume
For the Period Ended June 30	F/(Unfav)
% change
Planning	Flexible	Activity	Change should be based on units
Budget	Budget	or Volume	F/(Unfav)
Variance	% change
Number of units (Q)	500	550	10.0%	F
Revenue	$ 37,500	$ 41,250	$ 3,750	10.0%	F	100% Variable
Expenses:	Reminder Y = a + bX	Fixed	Variable Each
Wages and salaries	$ 20,000	$ 21,500	$ (1,500)	-7.5%	U	Fxd. & Variable	$ 5,000	$ 30
Gasoline and supplies	4,500	4,950	$ (450)	-10.0%	U	100% variable	$ - 0	$ 9
Equipment maintenance	1,500	1,650	$ (150)	-10.0%	U	100% variable	$ - 0	$ 3
Office and shop utilities	1,000	1,000	$ - 0	0.0%
Office and shop rent	2,000	2,000	$ - 0	0.0%
Equipment Depreciation	2,500	2,500	$ - 0	0.0%
Insurance	1,000	1,000	$ - 0	0.0%
Total expenses	32,500	34,600	(2,100)	-6.5%	U
Net operating income	$ 5,000	$ 6,650	$ 1,650	33.0%	F
Due to Volume	Revenue	10.0%	Up = Fav	3	Single Driver = Units Sold
Net operating income	33.0%	Up = Fav
PPT	4	Single Driver = Units Sold	Actual minus Flex'd
Revenue Variance	Added Excel 4	Management focus for spending
STATIC v. FLEX Budget	Non-Con. Volume	Controllable
For the Period Ended June 30	Static	F/(Unfav)	Prior Step	F/(Unfav)	Budget
4	Planning	Activity	Flexible	Spending	Data Given	to Actual	550
Budget	or Volume	Budget	Revenue	Actual	Variance	All	Controllable	3.18
Variance	Variance	1,749
Number of units (Q)	500	550	Controllable	550
Revenue	$ 37,500	$ 3,750	$ 41,250	$ 1,750	$ 43,000	$ 5,500	F	F
Expenses:	0
Wages and salaries	$ 20,000	$ (1,500)	$ 21,500	$ (2,000)	$ 23,500	(3,500)	U	U
Gasoline and supplies	4,500	$ (450)	4,950	$ (150)	5,100	(600)	U	U
Equipment maintenance	1,500	$ (150)	1,650	$ 350	1,300	200	F	F
Office and shop utilities	1,000	$ - 0	1,000	$ 50	950	50	F	F
Office and shop rent	2,000	$ - 0	2,000	$ - 0	2,000	0
Equipment Depreciation	2,500	$ - 0	2,500	$ - 0	2,500	0
Insurance	1,000	$ - 0	1,000	$ (200)	1,200	(200)	U	U
Total expenses	32,500	(2,100)	34,600	(1,950)	36,550	(4,050)	U	U
Net operating income	$ 5,000	$ 1,650	$ 6,650	$ (200)	$ 6,450	1,450	F	U
Revenue	$s	Variable	Summary	Variable	Price //	550	Fav.
Static	37,500	Units	$s Each	each	Volume	Spending	500	50
Volume [or Activity]	3,750	50	75	Revenue	$ 75	$ 3,750	$ 1,750
Price/other	1,750	Expenses	$ 42	(2,100)	(1,950)
Actual	43,000	Income	$ 33	1,650	(200)
1,450
Wages and salaries	$s	Variable
Static	20,000	Units	$s Each	Fixed	Single Driver = Units Sold
Activity	(1,500)	50	30	$ 5,000
Price/other	(2,000)
Actual	23,500	4
PPT
ClassCo Manufacturing
STATIC Budget	Y=a+bX	Static	5A1	Multiple Drivers
Budget	DL Hours	Units
Sales Qty.	3,000	Hours	12,000	Driver	4.00	Hrs.Each
Sell each	$ 340	Units	3,000	Driver
3,000
Sales	Units sold	1,020,000	STATIC Budget	340
TWO	Variable	67%	33%	Sales	1,020,000
Expense	Driver	Each	Fixed	Fixed	Variable	% Fxd.
100% V	Direct labor	DL Hours	$ 14.00	0	168,000	12,000	$14.00	0	168,000	0%	12,000	$ 14.00	$ 168,000
100% V	Material & Supplies	Units	$ 22.00	0	66,000	0	66,000	0%	3,000	$ 22.00	$ 66,000
Y=a+bX	Line Supervision	Units	$ 3.00	110,000	119,000	= $110,000 + $3 X 3000 units	110,000	9,000	92%	Y=a+bX
100% F	Deprecation	N/A	$ - 0	250,000	250,000	250,000	0	100%
Y=a+bX	Rework & repair	DL Hours	$ 2.50	20,000	50,000	= $20,000 + $2.5 X 12000 hrs.	20,000	30,000	40%	12,000	$ 2.50	20,000
Y=a+bX	Testing	Units	$ 4.00	80,000	92,000	= $80,000 + $4 X 3000 units	80,000	12,000	87%
100% F	Admin.	N/A	$ - 0	120,000	120,000	120,000	0	100%
580,000	285,000	67%
Total	580,000	865,000	Sum F/V	865,000
Operating Income	155,000
ClassCo Manufacturing	Multiple Drivers	Line supervision	Materials & supplies	Direct Labor	3,345
FLEX Budget	5C3	Driver Units	3,300	Driver Units.	3,300	Driver Hrs.	14,000	4	Hours
Actual	Actual	From Actual Below	per unit	$ 3.00	per unit	$ 22.00	per unit	$ 14.00	13,380	units Sold
Actual Hrs.	14,000	9,900	72,600	196,000	3,300
Actual UnitsSold	3,345	Act. Units made	3,300	MADE=Production	Fxd.	110,000	Fxd.	0	Fxd.	0	4	Hours
Flex'd	119,900	Flex'd	72,600	Flex'd	196,000	13,200	units Made
Sales $	1,137,300	14,000	Actual Hrs.
TWO	Variable	64%	36%	Rework & Repair	800	Unfav Hours
Expense	Driver	Each	Fixed	Fixed	Variable	Variable	Driver Hrs.	14,000	$14
Direct labor	DL Hours	$ 14.00	0	196,000	Flexible budget	0	196,000	14,000	$ 14.00	per unit	$ 2.50	$11,200	Could be classified as Unfav. Perfor. not FLEX
Material & Supplies	Units	$ 22.00	0	72,600	Flexible budget	0	72,600	14,000	$ 22.00	35,000	inlcuded in FLEX in this example
Line Supervision	Units	$ 3.00	110,000	119,900	Flexible budget	110,000	9,900	3,300	$ 3.00	Fxd.	20,000	ACC302 clarifes
Deprecation	N/A	$ - 0	250,000	250,000	Flexible budget	250,000	0	N/A	N/A	Flex'd	55,000
Rework & repair	DL Hours	$ 2.50	20,000	55,000	Flexible budget	20,000	35,000	14,000	$ 2.50
Testing	Units	$ 4.00	80,000	93,200	Flexible budget	80,000	13,200	3,300	4	Testing
Admin.	N/A	$ - 0	120,000	120,000	Flexible budget	120,000	0	N/A	N/A	Driver units	3,300
Total:	580,000	906,700	580,000	326,700	per unit	$ 4.00
Sum F/V	906,700	13,200
Operating Income	230,600	Fxd.	80,000
Flex'd	93,200
Drivers:	Sales
DL Hours	Sold Qty. @ Budget SP each	$340
Units Sold	1,137,300	3,345
Act. Q.	3,345	$1,137,300
Bud.SP ea.	$ 340.00	Volume
Budget	1,020,000	117,300
Actual sales	1,145,300	8,000
Spending/Performance/Price
ClassCo Manufacturing
Actual	Actual	5C2
Units	3345	Actual Hrs.	14,000
Act. Units made	3,300	made	S
Sales	1,145,300
Expense
Direct labor	204,000
Material & Supplies	69,000
Line Supervision	131,000	Multiple Drivers
Deprecation	248,500
Rework & repair	47,000
Testing	95,000
Admin.	128,000
Total	922,500
Operating Income	222,800
Column #1	Column #2	Column #3	Column #4	Column #5
STATIC v. FLEX Budget	Non-Con. Volume	5D4	Controllable Performance	Total	`
For the Period Ended June 30	F/(Unfav)	from above	Budget
Multiple Drivers	Planning	Activity	Flexible	F/(Unfav)	to Actual
Budget	or Volume	Budget	Spending	Actual	Variance
Variance	Variance
DL Hrs	12,000	14,000	Cost/Prics	14,000
Units	3,000	3,300	Perf.	3,300
Sales	1,020,000	117,300	1,137,300	8,000	1,145,300	125,300	0
Expense
DL Hours	Direct labor	168,000	(28,000)	196,000	(8,000)	204,000	(36,000)	0
Units	Material & Supplies	66,000	(6,600)	72,600	3,600	69,000	(3,000)	0
Units	Line Supervision	119,000	(900)	119,900	(11,100)	131,000	(12,000)	0
N/A	Deprecation	250,000	0	250,000	1,500	248,500	1,500	0
DL Hours	Rework & repair	50,000	(5,000)	55,000	8,000	47,000	3,000	0
Units	Testing	92,000	(1,200)	93,200	(1,800)	95,000	(3,000)	0
N/A	Admin.	120,000	0	120,000	(8,000)	128,000	(8,000)	0	Volume	75,600
Total	865,000	(41,700)	906,700	(15,800)	922,500	(57,500)	0	Performance	(7,800)
Total	67,800
Operating Income	155,000	75,600	230,600	(7,800)	222,800	67,800	0
PPT

HCT---&P of &N---&D,&T---&F,&14&A

Quantity of units sold is the driver is this example

More Revenue is Favorable Less Revenue is Unfavorable More Expense/Cost is Unfavorable Less Expense/Cost is Favorable

B-A

A-D

FROM ACTUAL BELOW X

ACTUAL

Create Static Budget

Actual

Actual vs. Static Budget

"Flex' Static Budget

Flex vs Static budget = Volume

Flex vs Static Budget = Volume

5 Column showing Perf./Spdg & Volume

Flex vs Static budget Summary

Create Static Budget

Flex Budget Two Drivers

5 Column showing Perf./Spdg & Volume

Ch.9 Flex B

Rider University	Chapter 9	Chapter 9 -- Example -- HCT	ACC302 Cost Management	Computational Template
ACC220	Flexible Budgets & Direct Cost Variances
Actual	Standard	Normal
Computational Template
Actual	Standard	Normal
Materials	Purchase price	Actual x	Standard x	Actual x
Usage per Unit	Actual x	Standard x	Actual x
Units made	Actual	Actual	Actual
Variance on P&L	No	Yes	No
Labor	Rate per DL .Hr.	Actual	Standard x	Actual
Hrs, per Unit	Actual	Standard x	Actual
Units	Actual	Actual	Actual
Variance on P&L	No	Yes	No
Overhead *	Rate per Hr.	Actual	Standard x	Normal x
Hrs. per Unit	Actual	Standard x	Actual x
Units	Actual	Actual	Actual
Variance on P&L	No	Yes	Yes
Usage per Unit	Actual x	ERROR:#REF!	Actual x
Level 0	Operating Income	FAC	Variable	FAC	Variable	Normal = Plan	Units made	Actual	Actual	Actual
Level 1	Act-Static Budget by P&L line	Actual	Actual	Std.	Std	FAC	Variable	Theoretical	Variance on P&L	No	Yes	No
Level 2	Act-Flex-Static Budget by P&L line	Business Plan Production Units	2,000,000	2,000,000	2,000,000	2,000,000	3,998,000	Labor	Rate per DL .Hr.	Actual	Standard x	Actual
Level 3	Act-Flex-Static Budget by Level below P&L line such as direct costs	Actual Production units	1,975,000	1,975,000	1,975,000	1,975,000	1,975,000	1,975,000	Hrs, per Unit	Actual	Standard x	Actual
Planned Sales Units for STD./Normal & Actual units for Actual	1,875,000	1,875,000	1,950,000	1,950,000	1,950,000	1,950,000	- 0	Units	Actual	Actual	Actual
Level 4	Act-Flex-Static Budget at lower level such as function	Planned Sales Price/unit	$ 525	$ 525.00	$ 531.00	$ 531.00	$ 531.00	$ 531.00	Variance on P&L	No	Yes	No
Planned Ending Inventory	50,000	50,000	50,000	50,000	Overhead *	Rate per Hr.	Actual	Standard x	Normal x
Actual ending Inventory	100,000	100,000	100,000	100,000	100,000	100,000	Hrs. per Unit	Actual	Standard x	Actual x
Static budget Variance:	Actual - static budget	Actual Sales Price	1,875,000	1,875,000	Units	Actual	Actual	Actual
Flexible Budgeted	Actual Unit Sales	$ 525.00	$ 525.00	Variance on P&L	No	Yes	Yes
Sales	Actual units x Budgeted ASP	Direct Material unit price	$ 7.00	$ 7.00	$ 7.25	$ 7.25	$ 7.25	$ 7.25
CM$	Flexible Sales x Budget CM%	DM qty./unit	10.50	$ 10.50	10.75	$ 10.75	$ 10.50	$ 10.50
Direct Costs	Actual Units x Budgeted direct costs/unit @ budget prices	DM $ /unit	$ 73.50	$ 73.50	$ 77.94	$ 77.94	$ 73.50	$ 73.50
Direct Costs	Flex Sales - Flex CM$s	DL Hrs per unit for denominator	6.40	6.40	6.70	6.70	6.70	6.70	4.95	172.7
Variable Overhead	Actual Units x Budgeted VOH/unit	DL Hr. Unit for Absorption/COGS	6.40	6.40	6.70	6.70	6.40	6.40
$/DL Hr.	$ 15.50	$ 15.50	$ 15.75	$ 15.75	15.50	$ 15.50
Level 0 variance	0	Actual Operating Income - Budget OI	DL$ Unit	$ 99.20	$ 99.20	$ 105.53	$ 105.53	99.20	$ 99.20
Static Budget var.by P&L	1	Actual P&L line - budget P&L Line	Planned Variable OH spending	$ 177,500,000	$ 177,500,000	$ 177,500,000	$ 177,500,000
Flexible Budget Variance	2	Actual - Flex budget	Actual Variable OH spending	$ 166,000,000	$ 166,000,000
Flex Budget CM$ Variance	2	(Actual Sales - Flex Sales) x Actual CM$/unit	Planned Fixed OH spending	$ 184,500,000	$ 184,500,000	$ 184,500,000	$ 184,500,000
Flex Input Costs	2	Actual input Qty x Budget input unit price	Actual Fixed OH spending	$ 173,000,000	$ 173,000,000
Sale volume variance for OI	2	Flex - static budget	Basis for OH Rates	DL Hours	DL Hours	DL Hours	DL Hours	DL Hours	DL Hours
Flexible Budget Variance + Sale volume variance = Static Bud. Var.	Denominator for OH Rate	12,640,000	12,640,000	13,400,000	13,400,000	13,400,000	13,400,000
Sale Mix Var.	2	(Act.Units x Actual ASP x Bus. CM$ /unit) - Flex CM$	Basis for Absorption	12,640,000	12,640,000	12,640,000	12,640,000	12,640,000	12,640,000
Sales Volume (or QTY.) Var for OI	2	Budget CM$/unit x ( Actual units - Budget units)
Sale volume variance for OI	2	Sale Mix Var.	.+	Sales Volume (or QTY.) Var for OI
Input Price Variance	3	(Actual Cost input x actual price) - (Actual cost input x budget price)	VOH Rate/Hour	$ 13.13	$ 13.13	$ 13.25	$ 13.25	$ 13.25	$ 13.25
Input Efficiency-Usage Var.	3	VOH Production unit	$ 84.05	$ 84.05	$ 88.75	$ 88.75	84.78	84.78
Selling Price Variance	(Actual Selling Price - budget selling price ) x actual units sold	Fixed OH Rate/Hour	$ 13.69	0	$ 13.77	0	$ 13.77	$ - 0
FOH Production unit	$ 87.59	0	$ 92.25	0	88.12
Level 1	Budget Variance	Var. Operating Exp.	$ 57,262,000	$ 57,262,000	$ 57,262,000	$ 57,262,000	$ 57,262,000	$ 57,262,000
Webb Company	Actual	Budget	Favorable/(Unfavorable)	Fxd. Operating Exp.	$ 116,895,000	$ 116,895,000	$ 116,895,000	$ 116,895,000	$ 116,895,000	$ 116,895,000
Amount	Per Unit	Amount	Per Unit	Amount	Per Unit	%
Units	10,000	12,000	(2,000)	-16.7%	GAAP	Yes	NO	Yes	NO	Yes	NO
Revenue	1,250,000	$ 125.00	1,440,000	$ 120.00	(190,000)	$ 5.00	-13.2%
Cost per Unit & Ending Inventory	FAC	Variable	FAC	Variable	Normal = Plan
Variable costs	Actual	Actual	Std.	Std	FAC	Variable
Direct Materials	621,600	$ 62.16	720,000	$ 60.00	98,400	$ 2.16	13.7%	Raw Materials (Direct Materials)	$ 73.50	$ 73.50	$ 77.94	$ 77.94	$ 73.50	$ 73.50
Direct Labor	198,000	$ 19.80	192,000	$ 16.00	(6,000)	$ 3.80	-3.1%	Direct Labor	$ 99.20	$ 99.20	$ 105.53	$ 105.53	$ 99.20	$ 99.20
VOH	130,500	$ 13.05	144,000	$ 12.00	13,500	$ 1.05	9.4%	VOH	$ 84.05	$ 84.05	$ 88.75	$ 88.75	$ 84.78	$ 84.78
Total Variable Costs	950,100	$ 95.01	1,056,000	$ 88.00	105,900	$ 7.01	10.0%	FOH	$ 87.59	$ - 0	$ 92.25	$ - 0	$ 88.12	$ - 0
Total	$ 344.35	$ 256.75	$ 364.46	$ 272.21	$ 345.60	$ 257.48
Contribution Margin	299,900	$ 29.99	384,000	$ 32.00	(84,100)	$ (2.01)	-21.9%
CM%	24.0%	26.7%	-2.7%	-10.0%	Beginning Inventory	100,000	100,000	100,000	100,000	100,000	100,000
Ending Inventory $
Fixed Costs	285,000	276,000	(9,000)	-3.3%	Raw Materials (Direct Materials)	$ 7,350,000	$ 7,350,000	$ 7,793,750	$ 7,793,750	$ 7,350,000	$ 7,350,000
Direct Labor	9,920,000	9,920,000	10,552,500	10,552,500	9,920,000	9,920,000
Operating Income	14,900	108,000	(93,100)	-86.2%	VOH	8,405,063	8,405,063	8,875,000	8,875,000	8,477,612	8,477,612
FOH	8,759,494	0	9,225,000	0	8,811,940	0
Total	$ 34,434,557	$ 25,675,063	$ 36,446,250	$ 27,221,250	$ 34,559,552	$ 25,747,612
Favorable/(Unfavorable)
Level 2	Sales	Flex
Webb Company	Actual	Budget	Flexible Budget	Volume	Budget	Computational Template
Amount	Per Unit	Amount	Per Unit	Amount	Per Unit	Variance	Variance
Units	10,000	12,000	10,000	(2,000)	0	Actual	Standard	Normal
83.3%	Materials	Purchase price	Actual x	Standard x	Actual x
Usage per Unit	Actual x	Standard x	Actual x
Revenue	1,250,000	$ 125.00	1,440,000	$ 120.00	1,200,000	$ 120.00	(240,000)	50,000	Units	Actual	Actual	Actual
Variance on P&L	No	Yes	No
Variable costs	Labor	Rate per DL .Hr.	Actual	Standard x	Actual
Direct Materials	621,600	$ 62.16	720,000	$ 60.00	600,000	$ 60.00	(120,000)	21,600	Hrs, per Unit	Actual	Standard x	Actual
Direct Labor	198,000	$ 19.80	192,000	$ 16.00	160,000	$ 16.00	(32,000)	38,000	Units	Actual	Actual	Actual
VOH	130,500	$ 13.05	144,000	$ 12.00	120,000	$ 12.00	(24,000)	10,500	Variance on P&L	No	Yes	No
Total Variable Costs	950,100	$ 95.01	1,056,000	$ 88.00	880,000	$ 88.00	(176,000)	70,100	Overhead *	Rate per Hr.	Actual	Standard x	Standard x
Hrs. per Unit	Actual	Standard x	Actual x
Contribution Margin	299,900	$ 29.99	384,000	$ 32.00	320,000	$ 32.00	(64,000)	(20,100)	Units	Actual	Actual	Actual
CM%	24.0%	26.7%	26.7%	0.0%	-2.7%	Variance on P&L	No	Yes	Yes
Over/Under absorbed OH
Fixed Costs	285,000	276,000	276,000	0	9,000
* if Direct Fixed Mfg. OH is recognized then Normal same as DM or DL
Operating Income	14,900	108,000	44,000	(64,000)	(29,100)
Level 3	Computation of Absorption / Variances
Selling price variance	FAC	Variable	FAC	Variable	Normal = Plan
Actual SP	$ 125.00	a	Actual	Actual	Std.	Std	FAC	Variable
Budget SP	$ 120.00	b		Production Units	1,975,000	1,975,000	1,975,000	1,975,000	1,975,000	1,975,000
∆ Selling Price	$ 5.00	c	a - b	Sales Units	1,875,000	1,875,000	1,875,000	1,875,000	1,875,000	1,875,000

Actual units	10,000	d	DM unit price	$ 7.00	$ 7.00	$ 7.25	$ 7.25	$ 7.25	$ 7.25
DM qty./unit	$ 10.50	$ 10.50	$ 10.75	$ 10.75	$ 10.50	$ 10.50
Selling Price Variance	$ 50,000	e	c x d	DM $ /unit	$ 73.50	$ 73.50	$ 77.94	$ 77.94	$ 73.50	$ 73.50
Total	145,162,500	145,162,500	153,926,563	153,926,563	145,162,500	145,162,500
Variance (Fav)/Unfav	(8,764,063)	(8,764,063)	- 0	- 0
Sales volume variance
Budget CM$/unit	$ 32.00	f	DL Hrs per unit	$ 6.40	$ 6.40	$ 6.70	$ 6.70	$ 6.40	$ 6.40
∆ Units	(2,000)	g	$/DL Hr.	$ 15.50	$ 15.50	$ 15.75	$ 15.75	$ 15.50	$ 15.50
Variance	(64,000)	h	g x f	DL$ Unit	$ 99.20	$ 99.20	$ 105.53	$ 105.53	$ 99.20	$ 99.20
Actual	Budget	Total:	195,920,000	195,920,000	208,411,875	208,411,875	195,920,000	195,920,000
Sales Mix Variance	PL1	40%	PL1	50%	Variance (Fav)/Unfav	(12,491,875)	(12,491,875)	- 0	- 0
∆ CM% due to Mix	-1.2%	i	PL2	60%	Pl2	50%
Actual sales	1,250,000	j	PL1 CM%	29.5%	PL1 CM%	28.7%	Absorption for Std. or COGS for Actual	Absorbed	Absorbed	Absorbed	Absorbed
Mix variance	(15,250)	I x j	PL 2 CM%	22.8%	PL 2 CM%	24.7%	VOH Unit	$ 84.05	$ 84.05	$ 88.75	$ 88.75	$ 84.78	$ 84.78
CM%	25.48%	CM%	26.70%	FOH Unit	$ 87.59	$ - 0	$ 92.25	$ - 0	$ 88.12	$ - 0
VOH: Manufacturing	$ 166,000,000	$ 166,000,000	$ 175,281,250	$ 175,281,250	$ 167,432,836	$ 167,432,836
Sales Quantity variance	FOH: Manufacturing	$ 173,000,000	$ 173,000,000	$ 182,193,750	$ - 0	$ 174,035,821	$ - 0
Sales volume variance	(64,000)	Actual ASP	$ 125.00
Mix variance	(15,250)	Budget ASP	$ 120.00	(Over)/Under Absorbed
Quantity Variance	(48,750)	∆ ASP	$ 5.00	VOH Variance	(9,281,250)	(9,281,250)	(1,432,836)	(1,432,836)
Actual Units	10,000	FOH Variance	(9,193,750)	(1,035,821)
Sales Price Variance	50,000	Sale Price Variance	$ 50,000
Sales Mix Variance	(15,250)	a
Sales Quantity variance	(48,750)	b
Sales volume variance	(64,000)	a + b = c	Statement of Income
Flex budget variance	(29,100)	d
Total variance	(93,100)	c + d	FAC	Variable	FAC	Variable	Normal = Plan
Actual	Actual	Std.	Std	FAC	Variable
Level 3	Units Produced	1,975,000	1,975,000	1,975,000	1,975,000	1,975,000	1,975,000
Input Variances:	Units Sold	1,875,000	1,875,000	1,875,000	1,875,000	1,875,000	1,875,000
Net Revenue	$ 984,375,000	$ 984,375,000	$ 984,375,000	$ 984,375,000	$ 984,375,000	$ 984,375,000
Sales Price Variance	50,000	Cost of Goods Sold
Material	137,812,500	137,812,500	137,812,500	137,812,500
Direct Materials	0	Labor	186,000,000	186,000,000	186,000,000	186,000,000
Direct Labor	0	Variable Overhead	157,594,937	157,594,937
VOH	0	Fixed Overhead	164,240,506	- 0
Standard Material	146,132,813	146,132,813
Unit of measure►	Sq.yards	Hours	Standard Labor	197,859,375	197,859,375
Budget input Qty per Unit	2	0.80	z	data	Standard VOH	166,406,250	166,406,250	158,955,224	158,955,224
Direct	Direct	Standard Fxd.OH	172,968,750	- 0	165,223,881	- 0
Materials	Labor	Ref#	Formula	Material variance	(8,764,063)	(8,764,063)	- 0	- 0
Actual Input Quantity	22,200	9,000	a	data	Labor variance	(12,491,875)	(12,491,875)	- 0	- 0
Actual Input Unit Price	$ 28.00	$ 22.00	b	data	VOH (Over)/ Under Abs.	(9,281,250)	(9,281,250)	(1,432,836)	(1,432,836)
Actual Total input cost	621,600	198,000	c	a x b	FXD OH (Over) under Absorbed	(9,193,750)	(1,035,821)
Actual Units	10,000	10,000	d	data	Total COGS	645,647,943	481,407,437	643,636,250	479,861,250	645,522,948	481,334,888
Budget units	12,000	12,000	e	data	*
Budgeted Input Unit Price	$ 30.00	$ 20.00	f	data	Gross Margin	502,967,563	504,513,750	503,040,112
Act. Input qty. x Budget unit Price	666,000	180,000	g	a x f	Gross Profit	338,727,057	340,738,750	338,852,052
Flex Input Costs	600,000	160,000	h	d x f x z	Variable Operating Expense	57,262,000	57,262,000	57,262,000
Contribution Margin	445,705,563	- 0	447,251,750	- 0	445,778,112
Favorable/(Unfavorable)	Price Variance	44,400	(18,000)	i	g - c
Favorable/(Unfavorable)	Efficiency-Usage Variance	(66,000)	(20,000)	j	h - g	( a x ( d x z )) x f	Fixed Manufacturing Costs	173,000,000	173,000,000	173,000,000
Favorable/(Unfavorable)	Flex budget Variance	(21,600)	(38,000)	k	I + j	Fixed Operating Expense	116,895,000	116,895,000	116,895,000
Total Operating Expense	174,157,000	174,157,000	174,157,000
Operating Income	$ 164,570,057	$ 155,810,563	$ 166,581,750	$ 157,356,750	$ 164,695,052	$ 155,883,112
Summary
Variance	* = If Material portion of variances capitalized to Inventory
Actual	Time phasing of variances incurred not considered in this example
to
Budget	(Fav)/Unfav
Variances
Revenue	(190,000)	Material variance	(8,764,063)
Labor variance	(12,491,875)
Variable costs	VOH (Over)/ Under Abs.	(9,281,250)
Direct Materials	98,400	FXD OH (Over) under Absorbed	(9,193,750)
Direct Labor	(6,000)	Total:	(39,730,938)
VOH	13,500
Total Variable Costs	105,900	Ending Inventory Units	100,000
Total annual Production	1,975,000
Contribution Margin	(84,100)	Flexible Budget Variance	% production on-hand	5.06%
CM%	(0)	Sales	Selling	Flexible	Usage
Volume	Price	Budget	Price	Efficiency	Flexible	Variances capitalized if material	(2,011,693)	debit COGS, credit inventory
Fixed Costs	(9,000)	Variance	Variance	Variance	Variance	Variance	Budget	Standard Format Operating Income B4 variance recap	$ 166,581,750
Adjusted Standard Operating Income for recap	164,570,057	equals	Operating Income at actual
Operating Income	(93,100)	(64,000)	(29,100)	(93,100)	% change	-1.21%
Inventory @ Standard	$ 36,446,250
Revenue	50,000	Inventory at Std. Adjusted for Adjusted for recap	34,434,557
% change	-5.52%
Direct Materials	44,400	(66,000)	(21,600)
Direct Labor	(18,000)	(20,000)	(38,000)	Inventory @ Actual	$ 34,434,557
VOH	(10,500)	(10,500)	Inventory at Std. B4 variance recap	$ 34,434,557
Total Variable Costs	50,000	(10,500)	26,400	(86,000)	(20,100)	Inventory at actual = the inventory at standard adjusted to recap variances
Fixed Costs	(9,000)	(9,000)	Second Example
Operating Income	(64,000)	50,000	(19,500)	26,400	(86,000)	(29,100)	Product ABC3
Actual	Standard to set OH rates
Production	5,500	5,850	Basis DL Hours
Std.	Actual	Standard	Actual	Normal
Other Variances	BOM	Standard	Standard	Actual	price	price	$s	$s	$s
Quantity/Ea	Quantity/Ea	Consumption	Consumption	Each	each	to Inventory	Consumption	Consumption
Market Share Variance	Aableticks	6.000	6.030	33,165	34,120	$ 4.2300	$ 4.2000	140,288	143,304	143,304
Actual Market Size	7,500,000	m	data	Plastic sizers	12.000	12.580	69,190	70,500	0.0550	0.0590	3,805	4,160	4,160
Budget Market Size	7,575,000	n	data	Frames	1.000	1.001	5,506	5,522	12.2500	13.1200	67,442	72,449	72,449
Actual Revenue	1,250,000	p	data	fastener	44.000	49.000	269,500	261,250	0.0006	0.0006	162	157	157
Actual Market Share	16.7%	q	p / m
Budget CM%	26.7%	r	data	Hours or per Hr.
Budget Revenue	1,440,000	s	data	Direct Labor	3.61	3.98	21,890	21,450	12.75	13.10	70,125	72,050	72,050
Budget Market Share	19.0%	t	s / n
Actual CM$	299,900	u	data	VOH Spending	373,336	Actual Hrs. each	351,000	337,194	337,194
Flex market share CM$	333,333	v	m x q x r	FOH Spending	493,527	3.90	464,000	410,253	410,253
Actual market @ budget share-CM%	380,198	w	m x t r	VOH/Hr.	$ 16.03	$ 15.72	343,945
Budget CM$	384,000	z	data	FOH/Hr.	$ 21.20	$ 19.13	454,673
Market Share Variance	(46,865)	x	v - w	VOH/Unit	$ 63.82	$ 61.31	351,000
Market Size Variance	(3,802)	y	w - z	FOH/Unit	$ 84.36	$ 74.59	464,000
Sale Quantity Variance	(50,667)	aa	x + y
Normal	Std.	Actual
Mix Variance	Unit Cost	Material	$ 40.01	38.49	40.01
Materials	DL	Labor	50.75	50.75	50.75
Efficeincy Variance:	(66,000)	(20,000)	VOH	62.54	$ 63.82	$ 61.31
FOH	82.67	$ 84.36	$ 74.59
Total Budget Units of Input	12,000	ba	data	Total	$ 235.96	$ 237.42	$ 226.66
Actual unit of Input	10,000	bb	data
Budgeted PL1 Unitts %	50.0%	bc	data
Budget PL2 Units %	50.0%	bd	data
Budget input unit per unit PL1	1.5	be	data
Budget input unit per unit PL2	2.5	bf	data
Actual PL1 Units %	45.0%	bg	data
Actual PL2 Units %	55.0%	bh	data
Busgeted input units for Actual Units out	20,000	bi	(bb x bc x be) + (bb x bd x bf)
Actual.input units-Bud.mix bud price	20,500	bj	(bb x bg x be) + (bb x bh x bf)
Budgeted input price	$ 30.00	bk	data
Mix Varaince $s	(15,000)	bl	(bi - bj) x bk	Changed only mix
Yield variance $	(51,000)	bn	bp - bl
Efficienct variance$	(66,000)	bp	above

This is not for ACC 220

Ch.10 StdCost

Efficiency Variances
Materials:
ECN Engineering change notice
Engineering change to Bill-of-materials
Scrap variance
Production not to specifications
Vendor material not to specifications
Usage Variance
Qty. usage exceeds allowance net of other variances
Direct Labor
Productivity: Downtimes
Material shortages
Process downtime
Engineering change to process
Efficiency
time on productive activity compare with
time allowed to produce
Excel 1	Each	per X33	Ea.subass'y	Table	21390
Bill of Material: X33 Table	Waste	Subassy.	Std.	Material	Material	3.8	41400
Scrap	Std.	Total	Std.	Std.	Std.	11020	62790
P/N	Item	UM	Qty	Allow	Usage	Usage	Price	Cost ea.	Cost ea.	20680	9.100
AA2	Top Assembly	unit	1	0%	1	1 in X33	42471	60060
a77	Metal frame	unit	1	0.50%	1.005	1.005	$ 11.00	$ 11.055	$ 11.055	45191	14600
l22	Laminate cover	sq.'	10	2%	10.200	10.200	$ 0.75	$ 7.650	$ 7.650	1212	3500
s44	side trim	linear ft.	9.2	4%	9.568	9.568	$ 0.22	$ 2.105	$ 2.105	2952	6700
t51	top cover	sq.'	10	1%	10.100	10.100	$ 4.25	$ 42.925	$ 42.925	4634	84860
LL2	Leg assemblies	unit	4	0	4	4 in X33	909
M98	Metal tubing	linear ft.	3	6%	3.180	12.720	$ 1.89	$ 6.010	$ 24.041	4 in X33	3024
FF8	end tabs	unit	1	0.40%	1.004	4.016	$ 0.04	$ 0.040	$ 0.161	4403
Std.	44631
Total	$ 87.936	Cost	51471
3.01
A	B	C	D	E	F	G	H	I	J	K	L	M	N	0
Excel 2	Improve from 89% to 93%	38
39
Time & motion	40
Engineered	Budget	Number	Ea.subass'y	Table	41
Process [Router]	Labor	Std. time	Allow	100%	Prior	Period	of minutes	Labor Hr.	Labor	Labor	42
For simplicity 1-step assembly - may be many steps	per ass'y	Time	Std.	Period	Prod.%	Std.	Std.	Std.	Std.	43
Qty per	UM	Qty	PFD	Time	Productivity	for Std.	Minutes	Price	Cost ea.	Cost ea.	44
4	LL2	Leg assemblies	Minutes	6.0	12%	6.8181818182	89%	93%	7.331	$ 12.00	$ 1.466	$ 5.865	4	per table	45
1	AA2	Top Assembly	Minutes	11.5	12%	13.068	92%	94%	13.9023210832	$ 14.75	$ 3.418	$ 3.418	1	per table	46
Can	47
6.0	89%	Use	+G45/(1-H45)	Total	$ 9.283	Cost	48
This	6 / (1 - 12%)	49
Variable OH	4	LL2	7.331	29.326	50
1	AA2	13.902	13.902	VOH rate/dl.hr.	51
Minutes	43.228	$ 6.667	$ 4.803	VOH per	X33	52
Given in example	.
Excel 3
ColaCo	Example: Overhead Variances Apx.
Std. each	Qty. 200 units
Production and Machine-Hour Data	.45 lbs. /unit	Actual
Budgeted production	30,000	units	$2.60 per lb	100 lbs
Standard machine-hours per unit	Std.	3.00	hours	90 lbs. total std	$295
Budgeted machine-hours	90,000	hours	$234.00	= .50 ilbs./unit
Actual production	28,000	units	each	3.00	= $2.95/unit
Standard machine-hours allowed for the actual production	84,000	hours	act @ std Q	made	28,000	∆ price/lb	$0.35
Actual machine-hours	88,000	hours	∆ lbs. unit	0.05
Cost / Spending Data	Quantity/Efficiency/Productivy
BUDGET:	Rate per machine hour	0.05	200	10	$2.60	$26.00
Budgeted VOH -variable manufacturing overhead	$ 90,000	$1.000	Std.	90000	X	$ 1.000	∆ Qty. each	std
Budgeted F MFG. OH-fixed manufacturing overhead	270,000	$3.000	Std.	$ 270,000	/	90,000	or	10 lbs X	$26.00	= $26.00
Total budgeted manufacturing overhead	$ 360,000	$4.000	Std.	$ 1.000	+	$ 3.000
ACTUAL:	Rate per Actual hour	Price
Actual variable manufacturing overhead	given	$ 100,000	$1.136	$ 100,000	/	88,000	0.35	100.00	$35.00
Actual fixed manufacturing overhead	given	280,000	$3.182	$ 280,000	/	88,000	∆ Price/lb.	Actual
Total actual manufacturing overhead	$ 380,000	$4.318
Act. OH Rate	$61.00
FLEX budget for Volume	Mfg. OH
Units	std hrs for act. Qty.	84,000
Variable OH	$ 84,000	$ 1.000	Budget rate
Fixed OH	$ 270,000	fixed	252000
Total	$ 354,000	Act. @ Std.
$ @ Std	$ 354,000	Budget Flex.d
Applied or Standard or Absorbed overhead-Mfg.OH	$/Driver--Rate	# Hrs.	Act. FG Qty	w. Act. Qty	$ 380,000	Actual
Units	std hrs for act. Qty.	84,000	3.00	28000	$ 26,000	Variance
Variable OH	$ 84,000	$1.000	3.00	28000	$84,000
Fixed OH	$ 252,000	$3.000	3.00	28000	$252,000
Total	$ 336,000	$4.000	$336,000
into inventory at STD.
Excel 4
Budget vs. Actual	Variable Overhead
Managerial Accounting:	Variable	Fixed	Total
Plan	$ 90,000	$ 270,000	$ 360,000
FLEX	$ 84,000	$ 270,000	$ 354,000
Actual	$ 100,000	$ 280,000	$ 380,000
Fav/[Unfav]	Volume	$ 6,000	$ - 0	$ 6,000	Fav	spend less
Fav/[Unfav]	Spending	$ (16,000)	$ (10,000)	$ (26,000)	UnFav	Spend more	check
Total/Net variances	$ (10,000)	$ (10,000)	$ (20,000)	UnFav	Spend more	90,000	Budget Qty
84,000	Std Qty. Actual Prodctn.
Actual vs. Applied	(6,000)	difference
Financial Accounting	Variable	Fixed	Total	Units	$ 4.000	Std. Rate
Actual	$ 100,000	$ 280,000	$ 380,000	88,000	$ 1.136	$ 1.000	$ (24,000)	under absorded at Std
Applied or Standard or Absorbed overhead-Mfg.OH	$ 84,000	$ 252,000	$ 336,000	84,000	Fav/(Unfav)	88,000	84,000	$ 6,000	volume
Rate variance	$ (12,000)	$ (12,000)	(0.136)	∆ rate. X act.hrs.	$ (26,000)	spending
Efficiency variance	$ (4,000)	$ (4,000)	(4000)	∆ Hrs. X std. rate	$ (44,000)	sum
Spending or budget variance	$ (10,000)	$ (10,000)	∆ Actual Spdg - Applied OH
Fixed overhead volume variance Applied/Absorption variance	$ (18,000)	$ (18,000)	∆ Budget or Plan Spending - Actual spdg. OR ∆ Hrs. Budget - std hrs X std.rate	$ 252,000	$ (270,000)	$ (18,000)
Total/Net variances	$ (44,000)
$ (28,000)	BUDGET:	ACTUAL:
270,000	280,000
(10,000)
BUDGET:	Applied or Standard or Absorbed overhead-Mfg.OH
90,000	84,000	(6,000)
$ 3.000	std fxd rate
(18,000)
Excel 5
Doing the Accounting with Standard Costs
Only standard material costs enter inventory
Purchase price variances on materials are removed at receipt
Only standard material costs move through inventory
variances are removed at each stage of production
Only std. labor & OH are input to inventory
Labor rate variances are removed at payroll/accrued P/R
Only std. labor & OH are input to inventory
variances are removed at each stage of production
Quarter 2 Year 2xx1
Materials Received	DR	CR	DR	CR
material purchased at std. value	Matl. Inventory@Std	500	Std. Value
material purchased at actual cost	A/P	525	Actual
Difference std - to actual	variance acctg in CoGS	25	Variance
if Act > std	If std > act	unfav.var.
Materials Used	DR	CR	DR	CR
Materials into WIP @ std.	WIP	615	Std. Value
Materials into WIP @ std.	Matl. Inventory@Std	615	Std. Value
Std. matl in Production Completed	FG	600	Std. Value @ std. qty per unit
Matl. @ std. used in Production Completed	WIP	615	Std. per unit @ act. Qty used
Difference std - to actual	variance acctg in CoGS	15	Qty. @ Std per unit
if Act > std Unfav	If std > act	unfav.var.
Labor Used	DR	CR	DR	CR
Direct labor Paid	WIP	375
DL paid @ std. rate	FG	382
DL rate variance	7	Variance
Difference std - to actual	FAV variance acctg in CoGS	FAV
if Act > std Unfav	If std > act: FAV
Production Completed	FG	402	Std $ @ std qty per unit
Production Completed	WIP	423
Difference std - to actual	variance acctg in CoGS	21
unfav.var.
if Act > std Unfav	If std > act: FAV
OVERHEAD above example	DR	CR
Incurred Actual Expenses	$ 380,000	Spending accts.
Expense accounts [variance acct. for applies OH] in CoGS	$ 380,000
A/p, Cash, Accrued etc.
Apply or Absorb OH to production
Inventory	$ 336,000	aborption accts
Variance account in CoGS	$ 336,000
The result is a variance in CoGS of the difference of $380K dr. & $336K credit
a $44K un fav Variance
Capitalized Variances: Variance Recorded in CoGS, if material then portion is to be capitalized into inventory
Production Variances:	$000
Material	$15	Unfav	Days inventory on-hand at QE
Labor	$21	Unfav	50
OH	$44	Unfav	Days of Qtr
$80	Unfav	90
55.6%
% of variances incurrred in inventory	55.6%
Net variances	$80
Variances into inventory - WIP & FG	44.4	Unfav	Dr. Inventory
Cr. CoGS
RM similar computations

ACC220---Ch.10 Std Cost---HCT---&P of &N---&D,&T---&F,&A

Ch.13 CapX

Chapter 13 Capital Budgeting	Excel 1
Cost	$ 3,170	data	Year	$	PV$
Life	4 years	0	$ (3,170)	$ (3,170)
Salvage value	zero	1	$ 1,000	$ 909
Increase in annual cash inflows AT	1,000	2	$ 1,000	$ 826
given	Hurdle rate	10.0%	3	$ 1,000	$ 751
Residual	0.0	4	$ 1,000	$ 683
$ (0)	$ (0)
initial [0]	1	2	3	4	Year
Buy Machine	(3,170)
Cash inflow	1,000	1,000	1,000	1,000	No outflows
Net cash flow	(3,170)	1,000	1,000	1,000	1,000
net nominal cash flow	(3,170)	1,000	1,000	1,000	1,000	(0.13)
discounted each year	(3,170)	909	826	751	683	3,170
1000/(1+10%)^1	1000/(1+10%)^3
Sum of discounted cash flows + initial	(0)	1000/(1+10%)^2	1000/(1+10%)^4
Formula	(0.13)	=NPV(C6,D13:G13)+C13
Cost of Capital	PE on	WACC
Excel 2	Additional	Future	Weighted Cost of Capital
$billion	Interst rate	PE now	earnings
Debt	50	8.0%	0.25	2.0%
Market cap	150	18	14.5	0.75	5.2%	Hurdle without risk adjustment
5.6%	6.9%	7.2%
PRETAX basis	7.2%
10.2%
Hurdle Rate	10.2%	70% average cost of capital/ 30% negative	70%	Risk adjustment
30% failure	success
Risk factors vary: productivity project risk may be lower than new product risk
Lester	Cost and revenue information	Excel 3
Excel 3	Cost of special equipment	$160,000
Working capital required	100,000	Tax
Relining equipment in 3 years	30,000	rate given as
Salvage value of equipment in 5 years	5,000	25%
TAX RATE	Annual cash revenue and costs:
CONSIDERS	Sales revenue from parts	803,300
DEDUCTION OF	Cost of parts sold	400,000
DEPRECIATION	Salaries, shipping, etc.	270,000	133,300	profit B4 tax	75%	Profitability
EXPENSE	Tax Rate =	25%	99,975	Profit after tax	index
NOT COVERED	$ 260,000	Initial investment
THIS CHAPTER	Hurdle rate:	10%	$ 161,641	PV
If WC now	By hand	62.2%
Period	Equipment	WC	Profit	Net Cash Flow	PV by Year	IRR Proof
0	($160,000)	($100,000)	($260,000)	$ (260,000)	$ (260,000)
1	$99,975	$99,975	$ 90,886	=+E47/((1+F$43)^A47)	$ 77,108
2	$99,975	$99,975	$ 82,624	$ 59,471
Relining Eqpmnt 3	($30,000)	$99,975	$69,975	$ 52,573	$ 32,104
4	$99,975	$99,975	$ 68,284	$ 35,377
W/C recapture- sales used Eqpmnt 5	$5,000	$100,000	$99,975	$204,975	$ 127,273	$ 161,641	$ 55,941
$ 0
NPV	$ 161,641	+E46+NPV(F43,E47:E51)	Sum
Excel Function	IRR	29.7%	+IRR(E46:E51,0.1)
29.7%
DENNY
Excel 4
Project Life:	4	years
Eqpmnt cost	$ 250,000	$ (270,000)	$ (270,000)
Upgrade Capital	$ 90,000	end 2 yrs.	Profitability	$ 120,000	101141.363626805
Salvage AT	$ 10,000	16,667	Before tax @ 40%	index	$ 30,000	21311.6154922698	Back to PPT 21
Working Capital	$ 20,000	$ 270,000	$ 120,000	71849.5283992767	Back to PPT 21
Cash flow	$ 120,000	per year assumed AT	$ 28,156	$ 150,000	75697.4924817257	Back to PPT 21
Hurdle Rate	14%	Min.acceptable rate=Discount Rate	one-stream	10.4%	$ 0	Back to PPT 21
Nominal $s	Back to PPT 21
Cash flow per year	Inflow	Working	Net	NPV	at IRR	Back to PPT 21
Period	Outflow	Annual	Salvage	Capital	Cash Flow	BY hand	18.6%	Back to PPT 21
0	$ (250,000)	$ (20,000)	$ (270,000)	$ (270,000)	$ (270,000)	(270,000)	Back to PPT 21
1	$ 120,000	$ 120,000	105,263	101,141	120,000	=+K75/(1+$B$70)^A75	Back to PPT 21
2	$ (90,000)	$ 120,000	$ 30,000	23,084	21,312	30,000	=+K76/(1+$B$70)^A76	Back to PPT 21
3	$ 120,000	$ 120,000	80,997	71,850	120,000	=+K77/(1+$B$70)^A77	Back to PPT 21
4	$ 120,000	$ 10,000	$ 20,000	$ 150,000	88,812	$ 28,156	75,697	150,000	=+K78/(1+$B$70)^A78	Back to PPT 21
sum	$ 0	Back to PPT 21
NPV @ Hurdle Rate	$ 28,156	18.6%	$ 150,000	$ 28,156	Check IRR	Back to PPT 21
IRR	18.6%	+IRR(F74:F78,0.16)	+F74+NPV(B70,F75:F78)	Back to PPT 21
Hurdle Rate	14%	Min.acceptable rate	Excel IRR	@ IRR %	Excel 5
Year	by Hand
0	($104,320)	$ (104,320)
1	$20,000	17,544	=+E86/(1+$E$96)^D86	Proof	;=+IRR(E85:E95,0.2)
2	$20,000	15,389	=+E87/(1+$E$96)^D87	Proof	14.0%
3	$20,000	13,499	=+E88/(1+$E$96)^D88	Proof
4	$20,000	11,841	=+E89/(1+$E$96)^D89	Proof
5	$20,000	10,387	=+E90/(1+$E$96)^D90	Proof
6	$20,000	9,111	=+E91/(1+$E$96)^D91	Proof
7	$20,000	7,992	=+E92/(1+$E$96)^D92	Proof
8	$20,000	7,011	=+E93/(1+$E$96)^D93	Proof
9	$20,000	6,150	=+E94/(1+$E$96)^D94	Proof	TAX RATE 25%
14%	EXCEL "IRR" function	10	$20,000	5,395	=+E95/(1+$E$96)^D95	Proof
=+IRR(E85:E95,.22)	14.0%	0	Verfied
266666.666666667
Quick Check	Excel 6
Year	Proof by hand
0	$ (79,310)	($79,310)
1	$ 22,000	$19,643
2	$ 22,000	$17,539
3	$ 22,000	$15,660
4	$ 22,000	$13,983
5	$ 22,000	$12,485
IRR	12.0%	$0	Check IRR
+IRR(F100:F105,0.15)
12%
CAR
WASH
Excel 7	IRR problem
NOT NPV problem
A	!0% not used
(300,000)	New	Investment	(300,000)
(175,000)	OLD	Investment	40,000
(125,000)	Difference	(260,000)
B	40,000	OLD	sale of Old	Net invest
(85,000)	NET difference	for New
C
Total Cost Approach	Incemental Only
Discount Rate	10%	OLD	NEW	New - Old
Term/years	10	10	∆ Cash flow	∆ Cash flow
Year	0	(175,000)	(260,000)	-$300K+$40K	(85,000)	(85,000)
OLD	1	45,000	60,000	15,000	13,636	=+H129/(1+B$126)^B129
Profitability	2	45,000	60,000	Same	15,000	12,397	=+H130/(1+B$126)^B130
index	3	45,000	60,000	60,000	◄Answer►	15,000	11,270	=+H131/(1+B$126)^B131
$175,000	4	45,000	60,000	(50,000)	15,000	10,245	=+H132/(1+B$126)^B132
$56,348	5	45,000	60,000	10,000	15,000	9,314	=+H133/(1+B$126)^B133
32.2%	6	(35,000)	10,000	replace brushes	45,000	25,401	=+H134/(1+B$126)^B134
7	45,000	60,000	45,000	15,000	7,697	=+H135/(1+B$126)^B135
NEW	8	45,000	60,000	(80,000)	15,000	6,998	=+H136/(1+B$126)^B136	$56,347.61
Profitability	9	45,000	60,000	(35,000)	15,000	6,361	=+H137/(1+B$126)^B137
index	10	45,000	67,000	+$60k + $7k	22,000	8,482	=+H138/(1+B$126)^B138	83,149.133
$260,000	=+IRR(C128:C138,0.15)	17.6%	17.2%	Greater NPV	16.4%
$83,149	=+NPV(0.1,C129:C138)+C128	$56,348	$83,149	$26,802	NPV @ 10%	$26,802	$ 26,802
32.0%	Profitability Index =-C140/C128	32.2%	32.0%	NPV/Initial investment
+56348/175000	+83149/260000	NEW=More NPV $s @ rate > disc. Rate	56,348	=+C128+NPV(B126,C129:C138)
Go to Slide # 41
Quick Check
Excel 8
s
Incremental
Nominal	Discounted
A - B	By Hand
Rate	14%	A	B	∆	∆ NPV	∆
0	($80,000)	($60,000)	($20,000)	($20,000)	($20,000)	=+F158/(1+$B$157)^B158
1	$20,000	$16,000	$4,000	$4,000	$3,509	=+F159/(1+$B$157)^B159
2	$20,000	$16,000	$4,000	$4,000	$3,078	=+F160/(1+$B$157)^B160
3	$20,000	$16,000	$4,000	$4,000	$2,700	=+F161/(1+$B$157)^B161
Answer = "b."	4	$20,000	$16,000	$4,000	$4,000	$2,368	=+F162/(1+$B$157)^B162	13.4%
5	$30,000	$24,000	$6,000	$6,000	$3,116	=+F163/(1+$B$157)^B163
IRR	10.9%	13.4%	($5,229)
13.4%	NPV	($6,145)	($916)	($5,229)	$ 2,000	$ (5,229)
Profitability Index	-7.7%	-1.5%	NPV/Initial investment	=+E158+NPV(B157,E159:E163)
Furniture
Excel 9
-21000+9000
Incremental
Rate	BETTER	Old	New	∆ NPV
10%	Old	New	∆	PV/year	PV/year	PV/year
0	($4,500)	($12,000)	$7,500	($4,500)	($12,000)	$7,500	=+D183/((1+$A$182)^$A183)
1	($10,000)	($6,000)	($4,000)	($9,091)	($5,455)	($3,636)	=+D184/((1+$A$182)^$A184)
2	($10,000)	($6,000)	($4,000)	($8,264)	($4,959)	($3,306)	=+D185/((1+$A$182)^$A185)
3	($10,000)	($6,000)	($4,000)	($7,513)	($4,508)	($3,005)	=+D186/((1+$A$182)^$A186)
4	($10,000)	($6,000)	($4,000)	($6,830)	($4,098)	($2,732)	=+D187/((1+$A$182)^$A187)
5	($9,750)	($3,000)	($6,750)	($6,054)	($1,863)	($4,191)	=+D188/((1+$A$182)^$A188)
NPV function excel	less cost	discounted by year
NPV	($42,253)	($32,882)	($9,371)	$ (42,253)	$ (32,882)	$ (9,371)
Go to Slide # 45
BAY
Excel 10
Rate	14%	$34,320	$ (100,000)
Needed return	$34,320	14%
+PMT(F197,A207,D203)	4
+pmt(rate, nper,pv]	$34,320	($34,320.48)
rate = 14%, Nper=4, pv = ($100K)	PMT function
answer = "c."
PV$	PV$
Year	Tangible	Intangible	Total	PV$	Tangible	Intangible	Proof
0	$ (100,000)	$ - 0	$ (100,000)	Nominal	$ (100,000)	at 14%	at 14%	$34,320.48	=+NPV(G216,L205:L224)
1	$ 10,000	24,320.48	$34,320	Needed return	$ 30,106	$ 8,772	$ 21,334	$1,040,000.00	$s
2	$ 10,000	24,320.48	$ 34,320	Needed return	$ 26,408	$ 7,695	$ 18,714	1	0
3	$ 10,000	24,320.48	$ 34,320	Needed return	$ 23,165	$ 6,750	$ 16,416	2	0
4	$ 10,000	24,320.48	$ 34,320	Needed return	$ 20,320	$ 5,921	$ 14,400	3	0
Proof	$ (60,000)	$ 97,282	14.0%	IRR	$ 100,000	$ 29,137	$ 70,863	4	0
$0.00	NPV	5	0
6	0
Need	TANKER	Excel 11	7	0
Salvage	8	0
to be	Pv of project End salvage value = $1040,000	9	0
$1,040,000	Negative PV without salvage	$ 1,040,000	10	0	1,040,000
to meet	20	Years	11	0	20
12%	12%	hurdle rate	12	0	12.0%
requied	PV x (1 + rate)^years	$ 10,032,145	1.12 to the 20th power	x shortage	13	0	10,032,145
Hurdle Rate	Future value of	$ 1,040,000	after 20 years	14	0
What future vale has a PV of	$1,040,000	+G214*(1+G216)^G215	15	0
16	0
Excel 12	Daily Grind	Discounted	14%	17	0
Cash flows	∑ Non-Disc.cash flow	Discounted cash flow	∑ discounted cash flow	Discount rate 14%	18	0
0	$ (140,000)	$ - 0	$ (140,000)	$ - 0	19	0
1	$ 35,000	$ (105,000)	$ 30,702	$ (109,298)	20	$ 10,032,145
2	$ 35,000	$ (70,000)	$ 26,931	$ (82,367)
3	$ 35,000	$ (35,000)	$ 23,624	$ (58,743)
4	$ 35,000	$ - 0	$ 20,723	$ (38,020)	$ - 0
5	$ 35,000	$ 35,000	$ 18,178	$ (19,842)	$ 35,000
6	$ 35,000	$ 70,000	$ 15,946	$ (3,897)
7	$ 35,000	$ 105,000	$ 13,987	$ 10,091	($3,897)
8	$ 35,000	$ 140,000	$ 12,270	$ 22,360	$13,987
9	$ 35,000	$ 175,000	$ 10,763	$ 33,123	0.28
10	$ 35,000	$ 210,000	$ 9,441	$ 42,564
4.00	Years	6.28
Excel 13	Discounted
Period	Given Data Cash flows	∑ non-Disc.cash flow	Discounted cash flow	∑ discounted cash flow
0	($4,000)	$0	($4,000)	$0
1	$1,000	($3,000)	$877	($3,123)
2	$0	($3,000)	$0	($3,123)
3	$2,200	($800)	$1,485	($1,638)	($572)
4	$1,800	$1,000	$1,066	($572)	$779
5	$1,500	$2,500	$779	$207	0.73
3.44	Years	4.73
($800)	Non-discounted	Discounted
$1,800	aka nominal $	+PV(rate, nper, amt)
(0.44)	=+PV(14%,5,100)
($343.31)
Discount rate 14%
Excel 14	Tax rate	40.0%	since we buy with AT $, savings & income must be AT
Tax effect of depreciation not considered
Discount Rate	14.0%
Project Life	10 Years
Units produced	1	2	3	4	5	6	7	8	9	10
15,000	19,000	23,000	27,000	31,000	35,000	39,000	43,000	47,000	28,000
Alternative 1
Buy a smaller second machine to the one already in use
two machines	180,000	cost second new machine
200,000	replacement current old machine in 5 yrs.
1,800	maintenance cost = $3000 each machine per year	9	yrs
100,000	after 5 years, second machine residual value	100
15,000	residual value of existing old machine when 2nd machine purchase in 5 yrs.	8%
199.90
Alternative 2	BIG better machine
buy big more efficient model	375,000	Cost big machine
sell existing used machine	35,000
maintained per year	13,000
Savings per unit with better machine	$ 1.39
residual of new machine	50,000	after 10 years
Units	15,000	19,000	23,000	27,000	31,000	35,000	39,000	43,000	47,000	28,000
Discount rate	14.0%
Period:►	initial [0]	1	2	3	4	5	6	7	8	9	10
Alternative 1
second machine	(180,000)
replace first machine	(200,000)
Residual value	15,000	100,000
maintenance	(2,160)	(2,160)	(2,160)	(2,160)	(2,160)	(2,160)	(2,160)	(2,160)	(2,160)	(2,160)
net nominal cash flow	(180,000)	(2,160)	(2,160)	(2,160)	(2,160)	(2,160)	(187,160)	(2,160)	(2,160)	(2,160)	97,840
discounted each year	(180,000)	(1,895)	(1,662)	(1,458)	(1,279)	(1,122)	(85,268)	(863)	(757)	(664)	26,392
Sum of discounted cash flows + initial	(248,576)
Formula	(248,576)
Discount rate	14.0%
Period:►	initial [0]	1	2	3	4	5	6	7	8	9	10
Alternative 2
second machine	(375,000)
sell existing machine	35,000
residual of new machine	50,000
Savings or less cost per unit	12,510	15,846	19,182	22,518	25,854	29,190	32,526	35,862	39,198	23,352
maintenance	(7,800)	(7,800)	(7,800)	(7,800)	(7,800)	(7,800)	(7,800)	(7,800)	(7,800)	(7,800)
net nominal cash flow	(340,000)	4,710	8,046	11,382	14,718	18,054	21,390	24,726	28,062	31,398	65,552
discounted each year	(340,000)	4,132	6,191	7,683	8,714	9,377	9,745	9,881	9,837	9,655	17,682
Sum of discounted cash flows + initial	(247,103)
Formula	(247,103)	no difference
Change rate
Excel 15
Inflation, FX, etc. not considered
No consideration to tax effect of salvage
would have to be considered - complicating calculations
Discount rate	12.0%	tax rate	30%
Period:►	0	1	2	3	4	5	6	7	8	9	10
Ref#
Cost of equipment	(300,000)	100,000	A
Working Capital	(75,000)	75,000	B
Capitalized road maintenance	- 0	- 0	- 0	- 0	- 0	(40,000)	C
Nominal each yaer	(375,000)	- 0	- 0	- 0	- 0	- 0	(40,000)	- 0	- 0	- 0	175,000
discounted each year	(375,000)	- 0	- 0	- 0	- 0	- 0	(20,265)	- 0	- 0	- 0	56,345	Sum 1
D
Sales net of expense = pre tax income	130,000	130,000	130,000	130,000	130,000	130,000	130,000	130,000	130,000	130,000	E
SL tax exp. allowance for Depreciation	(30,000)	(30,000)	(30,000)	(30,000)	(30,000)	(38,000)	(38,000)	(38,000)	(38,000)	(38,000)	F
Pre-tax Income	100,000	100,000	100,000	100,000	100,000	92,000	92,000	92,000	92,000	92,000	G
taxes paid	30,000	30,000	30,000	30,000	30,000	27,600	27,600	27,600	27,600	27,600	H
Cash Income +E-((F-E)*tax rate)	100,000	100,000	100,000	100,000	100,000	102,400	102,400	102,400	102,400	119,600	I
J
net nominal Cash income cash flow	100,000	100,000	100,000	100,000	100,000	102,400	102,400	102,400	102,400	102,400	K
discounted each year	89,286	79,719	71,178	63,552	56,743	51,879	46,321	41,358	36,926	32,970	Sum 2
=+E338/(1+$C325)^E326
Sum 1 + Sum 2	(375,000)	89,286	79,719	71,178	63,552	56,743	31,614	46,321	41,358	36,926	89,315
Sum of discounted cash flows + initial	231,011	Sum 1 + Sum 2	By hand
Formula	231,011	=+C332+NPV(C325,D331:M331)+NPV(C325,D340:M340)
3
4	Excerl 15
5
X	Y
100000	100000
8%
X	Y	X	Y	sum
100000	100000	(100,000)
60000	60000	1	55,556	55556	-44444
40000	35000	2	34,294	30007	-14438
25000	3	- 0	19846	5408	-0.727488	3.73
25000	4	- 0	18376	23784
25000	5	- 0	17015	40799
25000	6	- 0	15754	56553
25000	7	- 0	14587	71140
25000	8	- 0	13507	84647
25000	9	- 0	12506	97153
25000	10	- 0	11580	108733
89,849	108,733
No pay back
12%	by hand
1	60,000	53,571.43
2	60,000	47,831.63	=+PV(B355,A360,B356)
3	60,000	42,706.81	ERROR:#REF!
4	60,000	38,131.08
5	60,000	34,045.61
$ 216,287
14%	by hand
0	($343.31)	Excel "PV" function
1	$100	87.72
2	100	76.95
3	100	67.50
4	100	59.21
5	100	51.94
$ 343.31
P r o o f
end period	Beginning	interest	Withdrawal	End
1	$343.31	$48.06	($100.00)	$291.37
2	$291.37	$40.79	($100.00)	$232.16
3	$232.16	$32.50	($100.00)	$164.67
4	$164.67	$23.05	($100.00)	$87.72
5	$87.72	$12.28	($100.00)	$0.00
DEFINITIONS
1	Accounting Rate of Return	= Simple Rate of Return = Average return for periods being examined divided by Average investment for that period
2	Compound Interest	Interest earned on investment and on interest previously earned [ interest on interest]
3	Discount Rate	Rate used to Reduce [Discount[ Future Cash Flows; Can be WACC; WACC adjusted for Risk: Incremental cost or Cost specific to the Project
4	Discounted Cash Flow	= DCF= future cash flows reduced to Present Value Using a Discount Rate
5	Hurdle Rate	Discount /rate which includes factor for success ratio on projects; e.g. 70% success rate then increase WACC by 3/7
6	Internal Rate of Return	=IRR= computed Rate applied to future cash flow such that the sum of initial investment and future cash flows = zero
7	Net Present Value	=NPV=Present value reduced by initial investment
8	Nominal Dollars	Non-discounted $s; spending/savings/returns without discounting
9	Payback Period	Using DCF or using nominal $then the period of time with discount $s that the future cash flows = initial investment.
10	Present Value	=PV=The current value of future Cash flows reducing by selected Discount Rate
11	Profitability Index	NPV divided by Initial Investment
12	Salvage Value	= Residual Value = RESALE =Amount expected to be resceived from sale/trade-in of intial capital investment item[s]
13	Weighted Average Cost of Capital	=WACC= Cost of Capital=Average of the Cost of Debt [Interest after tax and of Cost of Equity [usually through PE Ratio
14	Working Capital	Current Assets less Current liabilities
Simple Example
$1,000	Capital Expenditure	Residual =	0
10%	Discount Rate= Hurdle Rate
period	Returns	Rate
0	Nominal	DCF
1	$400	$364	$400/(1+discount Rate) to # of years power=$400/(1+10%)^1
2	$450	$372	$450/(1+discount Rate) to # of years power=$450/(1+10%)^2
3	$500	$376	$500/(1+discount Rate) to # of years power=$500/(1+10%)^3
$1,350	$1,111
$1,111	$111.19
PV Future CF--DCF	$1,111	($1,000)
NPV--DCF	$111	$111
$1,000	Average investment
$450	Average nominal $ Return
Accounting Rate of Return	45.0%
$111	NPV
Profitability Index	11.1%	$1,000	Initial Investment
1	2	3	◄Year
Payback Period	Years	$400	$450	$500
Nominal $s	2.30	$400	$450	$150	$1,000
$364	$372	$376
DCF	2.70	$364	$372	$264	$1,000
Capital Expenditure	($1,000)	DCF at
IRR	Year	Nom.Return	16.0%	Discounted
1	$400	$344.90	at
2	$450	$334.57	IRR
3	$500	$320.53	=
IRR	16.0%	$1,000.00	Initial
Proof	Investment
16%

HCT---&P of &N---&D,&T---&F,&A

•Decker Company can purchase a new machine at a cost of $104,320 that will save $26667 per year in cash operating costs. = $20000 AFTER TAX •The machine has a 10-year life.

How large would the salvage value need to be ?

Should Holland open a mine on the property?

•Decker Company can purchase a new machine at a cost of $104,320 that will save $20,000 per year in cash operating costs. •The machine has a 10-year life.

taxes

after taxes

Proof

$22000 AFTER TAX

CASH INFLOW AFTER TAX

OP.COST AFTER TAX

@10%

Both have DCF > Discount rate

Equal Cash Flows in Susequent Periods

Unequal Cash Flows in Susequent Periods

C-14 Cash Flow

Debits make cash go DOWN in Cash Flow
Credits make cash go UP
Account category	Normal Balance	Operating	Investing	Financing
Current Asset	Debit	X
Current Asset-Contra	Credit	X
Non-current Asset	Debit	X
Non-current Asset-Contra	Credit	X
Current Liability	Credit	X
Current Liability-Contra	Debit	X
Non-Current Liability	Credit	X
Non-Current Liability-Contra	Debit	X
Equity	Credit	X
Equity-Contra	Debit	X
Income Statement Accounts: Revenue/Income	Credit	X
Income Statement Accounts: Expense/Losses	Debit	X
Other Expense / Loss on sale of Non-current assets	Debit	X
Other income /Gain on sale of Non-current assets	Credit	X
Accumulated Amortization [Amortization Expense]	Credit	X	Add back to net income - Cash UP
Accumulated Depreciation [Depreciation Expense]	Credit	X	Add back to net income - Cash UP
Contra's act opposite from that to which they are contra
Taxes are operating whether deferred tax assets or deferred tax liabilities whether current or non-current	Dr./Cr,
#1	Repaid long term debt of :	$ 600,000	Data Set	#2	Purchase of PPE =	$ 125,000	Data given	Equity Example	Effect
Sale of PPE:NBV = $12000, Cost $24000, sold $14000)	Data Set	Purchase of Intangibles =	$ 95,000	Data given	Cost	$ 85,000	Dr/Cr Balance	2xx2	2xx1	Change	on Cash	Ref
Bought Treasury Stock	$ 12,000	Data Set	Sales of PPE =	$ 43,000	Gain =	$ 6,000	Data given	AD	$ 48,000	Common stock Par Value	C	$450,000	$320,000	$130,000	$130,000	W
Used Treasury Stock of $50,000 to buy PPE	$ 50,000	Data Set	Cost =	$ 85,000	Data given	BV	$ 37,000	Additional Paid-in-Capital	C	$9,670,000	$7,200,000	$2,470,000	$2,470,000	X
Sold common stock of	$ 125,000	Data Set	New Debt =	$ 470,000	Sale	$ 43,000	Treasury Stock	D	($1,054,000)	$0	($1,054,000)	($1,054,000)	Y
Paid dividend of	$ 23,000	Data Set	No Dividends	Retained Earnings	C	$3,200,000	$2,900,000	$300,000	$300,000	Z
Total Equity	C	$12,266,000	$10,420,000	$1,846,000	$1,846,000
Affect on	Class Company, Inc.
Class Company, Inc.	Category	Cash	Balance Sheet as of	Cash up	W	Issued/Sold Common Stock 130000 shares $1 par for $20
Balance Sheet as of	Increase	Increase	12/31/2xx1	12/31/2xx2	Cash	Cash up	X	Issued/Sold Common Stock 130000 shares $1 par for $20
Assets:	12/31/2xx1	12/31/2xx2	(Decrease)	(Decrease)	Assets:	Increase	Increase	Cash Down	Y	Bought Back 62000 shares common stock for $17
Current Assets:	$s	$s	Current Assets:	$s	$s	(Decrease)	(Decrease)	Cash down for dividends	Z	Had NI of $700,000 and Issued Dividends of $400,000
Cash	150,000	316,000	166,000	(166,000)	Cash	200,000	952,110	752,110	752,110
D	Accounts Receivable	355,000	418,000	63,000	(63,000)	D	Accounts Receivable	385,100	438,000	52,900	(52,900)
D	Prepaid Expenses	27,000	19,000	(8,000)	8,000	D	Prepaid Expenses	33,000	29,000	(4,000)	4,000
D	Other Current Assets	15,000	11,000	(4,000)	4,000	D	Other Current Assets	22,000	7,000	(15,000)	15,000
Total Current Assets:	547,000	764,000	217,000	(217,000)	Total Current Assets:	640,100	1,426,110
Plant Property & Equipment	954,000	1,127,000	173,000	(173,000)	D	Plant Property & Equipment	2,700,000	2,740,000	40,000	(40,000)
Cr.	Accumulated Depreciation	332,000	445,000	113,000	113,000	P&L item	Cr. Balance	Accumulated Depreciation	(600,000)	(760,000)	(160,000)	160,000	P&L item
Net Plant Property & Equipment	622,000	682,000	60,000	(60,000)	Net Plant Property & Equipment	2,100,000	1,980,000
Other Non-Current Assets:	Other Non-Current Assets:
D	Intangibles	375,000	350,000	(25,000)	25,000	P&L item	D	Intangibles	500,000	480,000	(20,000)	20,000	P&L item
D	Deferred Loan Placement Costs	25,000	25,000	0	0	P&L item	D	Deferred Loan Placement Costs	30,000	30,000	0	0	P&L item
D	Other Non-Current assets	15,000	14,000	(1,000)	1,000	D	Other Non-Current assets	41,000	37,000	(4,000)	4,000	givern as Oper.
Total Other Non-Current Assets	415,000	389,000	(26,000)	26,000	Total Other Non-Current Assets	571,000	547,000
Total Assets	1,584,000	1,835,000	251,000	(251,000)	Total Assets	3,311,100	3,953,110
Liabilities:	Liabilities:
Current Liabilities	Current Portion of Long Term Debt	260,000	290,000	30,000	30,000
C	Accounts Payable	129,000	139,000	10,000	10,000	C	Accounts Payable	720,000	760,000	40,000	40,000
C	Accrued Expenses	51,000	64,000	13,000	13,000	C	Accrued Expenses	50,000	40,000	(10,000)	(10,000)
C	Current Portion of LT debt	31,000	63,000	32,000	32,000	C	Other Current Liabilities	23,000	11,000	(12,000)	(12,000)
C	Other Current Liabilities	23,000	11,000	(12,000)	(12,000)	Total Current Liabilities	1,053,000	1,101,000
Total Current Liabilities	234,000	277,000	43,000	43,000
Non-Current Liabilities
Non-Current Liabilities	C	Long Term Debt	1,100,000	915,000	(185,000)	(185,000)
C	Long Term Debt	1,100,000	915,000	(185,000)	(185,000)	C	Deferred Income Taxes	55,000	71,000	16,000	16,000
C	Deferred Income Taxes	83,000	99,000	16,000	16,000	P&L item	C	Other Non-current Liabilities	3,000	5,000	2,000	2,000	P&L item
C	Other Non-current Liabilities	14,000	12,000	(2,000)	(2,000)	Operating/given	Total Non-Current Liabilities	1,158,000	991,000
C	Total Non-Current Liabilities	1,197,000	1,026,000	(171,000)	(171,000)
Total Liabilities	2,211,000	2,092,000
Total Liabilities	1,431,000	1,303,000	(128,000)	(128,000)
Owners Equity
Owners Equity	C	Common Stock @ par = $0.01	100	110	10	10
C	Common Stock @ par = $0.01	100	225	125	125	50,000	C	Additional Paid-in Capital	700,000	805,000	105,000	105,000
C	Additional Paid-in Capital	99,900	224,775	124,875	124,875	(12,000)	C	Retained Earnings	400,000	1,056,000	656,000	656,000
D	Treasury Stock [dr. acct.]	65,000	27,000	(38,000)	38,000	38,000	Total Owners' Equity	1,100,100	1,861,110
Part of RE	Dividends paid [before closing entries] dr.Acct.	0	23,000	23,000	(23,000)
After	Retained Earnings	118,000	357,000	239,000	239,000	Before	Total Liabilities and Owners Equity	3,311,100	3,953,110
closing JE	Total Owners' Equity	153,000	532,000	349,000	379,000	Dividends
acct.
Total Liabilities and Owners Equity	1,584,000	1,835,000	221,000	251,000	closed @ YE	0	0
0	0	Note: in this example we have Intangibles - which is also a non-cash charge to income
like depreciation - so we add that back to net income just like deprecation:
Note: in this example we have Intngibles - which is also a non-cash charge to income
like depreciation - so we add that back to net income just like deprecation:
Class Company, Inc.	Statement of Retained Earnings
Statement of Income	Beginning RE	400,000
Class Company, Inc.	Period Ending 12/31/2xx2	Net Income	656,000
Statement of Income	$s	$s	Dividends	0
Period Ending 12/31/2xx2	Revenue	7,000,000	100.0%	Ending RE	1,056,000
$s	$s
Revenue	3,600,000	100.0%	Statement of Retained Earnings	Cost of Goods Sold	4,500,000	64.3%
Beginning RE	118,000
Cost of Goods Sold	2,113,000	58.7%	Net Income	239,000	Gross Profit	2,500,000	35.7%
Dividends	(23,000)
Gross Profit	1,487,000	41.3%	Ending RE	334,000	Operating Expenses:	1,500,000	21.4%
Operating Income	1,000,000	14.3%
Operating Expenses:	End RE Before Div. closing JE	357,000
Wage Expense	721,000	20.0%	Dividends	(23,000)	Other Income/Gain	6,000	0.1%
Advertising & Marketing Expense	78,000	2.2%	End RE after Close JE	334,000
Vehicle Expenses	22,000	0.6%	Provision for Income Taxes	505,000	7.2%
Insurance and Other	48,000	1.3%
Depreciation	125,000	3.5%	Operating Income	1,000,000	14.3%
Write-off of Goodwill	25,000	0.7%	$24,000	COST	37000	NBV
Total Operating Expenses	1,019,000	28.3%	$12,000	AD	Other Income	6,000	0.1%	Gain =	43000	sold
$12,000	NBV	Taxes	350,000	5.0%	6000	Gain
Operating Income	468,000	13.0%	$14,000	Sold for	85000	Cost
$2,000	Gain on IS	Net Income	656,000	9.4%	48000	AD
Other Income (	2,000	0.1%	data from beginning	belongs in
Investing	Class Company, Inc.
Income Before Taxes	470,000	13.1%	Statement of Cash Flows for Period Ending 12/31/2012
$s
Provision for Income Taxes	231,000	6.4%	Cash Flows From Operating Activities:	Amrtzn
Net Income	656,000	∆	C - AD	Beg	$ 500,000
Net Income	239,000	6.6%	Plus: Depreciation	208,000	$ 160,000	$ 48,000	Added	$ 95,000
Plus: Amortization Expense	115,000	$ 20,000	$ 95,000	End	$ (480,000)
Changes in Current Assets and Liabilities	∆	Purchase [data]	Amrtzn	$ 115,000
(Increase) Accounts Receivable	(52,900)
Decrease Prepaid Expenses	4,000
Class Company, Inc.	Decrease Other Current Assets	15,000
Statement of Cash Flows for Period Ending 12/31/2xx2	Increase Accounts Payable	40,000
Increase Accrued Expenses	(10,000)
$s	(Decrease) Other Current Liabilities	(12,000)
Cash Flows From Operating Activities:	Other Changes
Net Income	239,000	AD sold	Less: Gain om Sale of PPE	(6,000)	Remove Gain or Loss-Sales of LT Assets
Plus: Depreciation Expense	125,000	113,000	12,000	125,000	Increase in Deferred Taxes	16,000	deferred tax Non-current are Operating
Plus: Amortization Expense	25,000	Change	Expense	Decrease in Non-current Liabilities	2,000	Given: Financing unless otherwise indicated
Less: Gain on Sale of PPE	(2,000)	14000	24,000	Cost
Changes in Current Assets and Liabilities	(12,000)	AD	Total Change in Cash from Operating Activities	975,100
(Increase) Accounts Receivable	(63,000)	12,000	2,000
Decrease Prepaid Expenses	8,000	Gain	Cash From Investing Activities
Increase Other Current Assets	4,000	Sale of PPE	43,000	from data set
Increase Accounts Payable	10,000	Capital Expenditures: PPE	(125,000)	(40,000)	(85,000)
Increase Accrued Expenses	13,000	Purchase of Intangibles	(95,000)	∆	cost sold
(Decrease) Other Current Liabilities	(12,000)	Other Non-Current assets	4,000
Total Cash Flows from Investing Activities	(173,000)
Other Changes
Increase in Deferred Taxes	16,000	Deferrd incom taxes always Operating	Cash Flows from Financing Activities	Dividends would be here as cash down
Decrease in OtherNon-current Liabilities	(2,000)	a given acct. detail not avail to student	Sale of Stock:Increase in Invested Capital	105,010
Total Change in Cash from Operating Activities	361,000	New Debt	470,000	Current	Non-current	net C & NC
Repayment of Debt	(625,000)	(470,000)	30,000	(185,000)	(155,000)
Cash From Investing Activities	ChangeforPPE	Sold Cost	Total Cash Flows from Financing Activities	(49,990)	New Debt (-)
Capital Expenditures	(197,000)	(173,000)	(24,000)	PPE
Other Non-current Assets	1,000	Net Change in Cash Position	752,110	0	Check
Proceeds from Sale of PPE	14,000	Sold PPE	Opening Cash Balance	200,000
Total Cash Flows from Investing Activities	(182,000)	Ending Cash Balance	952,110
(600,000)
Cash Flows from Financing Activities	447,000
Repayment of Debt	(600,000)	(153,000)	Debt
Additional borrowing	447,000	31,000	63,000	current
Sale of Common stockStock	125,000	1,100,000	915,000	non current
Purchase of treasury stock	(12,000)	1,131,000	978,000	(153,000)
Use of treasury stock	50,000	down
Dividends paid	(23,000)
Total Cash Flows from Financing Activities	(13,000)
Net Change in Cash Position	166,000
Opening Cash Balance	150,000
Ending Cash Balance	316,000	0
Definition of	1 of 2
Cash Flow
This definition of cash flow provides a more accurate representation
the funds the company has available to repay its debt and
cash needs.
Cash flow from operations
= Net income:
=+ or - Non-cash Expenses (depreciation and amortization)
=+ or - Nonrecurring income and expenses (Extraordinary or discontinued Ops)
=+ or - Gain/loss on sales of fixed assets/LT intangibles - Other income/Expense
+/- Changes in operating accounts
(aka working capital accounts)
include:
• Accounts receivable	Current Assets and Current liabilities for the most part
• Inventory
• Prepaid assets
• Other short-term assets
• Accounts payable
• Accrued liabilities
• Other short-term liabilities
Notice that this list includes any asset or liability classified as short-term
or current on the balance sheet except:
• Cash and cash equivalents	we are measuring cash changes
• Short-term investments	that's a cash equivalent
• Notes payable	a note payable though short term is a form of debt, i.e., Financing
• Current Portion Long Term Debt	This is short term because it’s the part of the long term debt
due within 12 months but it's still debt to outside party
not a supplier
Notice that this section of the balance sheet that includes long term
assets or liabilities that relate to the Income Statement such as
LT term deferred tax assets or liabilities
Cash Flow from Investing Activities:
• Uses of cash to acquire assets, such as capital
expenditures, investments and acquisitions
• Funds raised when any of these types of assets are sold are
shown in this section as sources of cash
Cash Flow from Financing Activities:
Shows increases or decreases in all sources of external
financing, such as short-term bank borrowings, commercial
paper, long-term bank debt, other long-term debt and
subordinated debt	Bank & third party borrowings
Also includes equity transactions, such as cash generated by
stock issues or other capital injections, and cash used to
repurchase stock or to pay dividends
More invested capital less payments to owners
Debité = Cashê

&P of &N---&D,&T---&F,&A---ACC220---HCT

Examine operating or financing

Run the business

External sources s

Internal Actions

C-14 Problems

Ex 14
Transaction	Operating	Investing	Financing	Source	Use
a.	Short-term investment securities were purchased	X	X
b.	Equipment was purchased	X	X
c.	Accounts payable increased	X	X
d.	Deferred taxes decreased	X	X
e.	Long-term bonds were issued	X	X
f.	Common stock was sold	X	X
g.	A cash dividend was declared and paid	X	X
h.	Interest was paid to long-term creditors	X	X
i.	A long-term mortgage was entirely paid off	X	X
j.	Inventories decreased	X	X
k.	The company recorded net income of $1 million for the year	X	X
l.	Depreciation charges totaled $200,000 for the year	X	X
m.	Accounts receivable increased	X	X

Ch.14 CF scan

ClassCo sells machine AARP 657 for	$ 215,000	sold for A/R
Realizes a gain on the IS of:	$ 42,000
Cost basis	$ 446,000
Accum. Depreciation [AD]	$ 273,000
Book Value	$ 173,000
Sell price - BV	$ 42,000
Journal entry recorded	DR	CR
Accum. Depreciation [AD]	$ 273,000	AD goes to -0-
Cost basis	$ 446,000	Cost goes to -0-
Accts. Receivable	$ 215,000	record A/R for sale
Gain on the Sale	$ 42,000
For Cash Flow:
Deduct gain from Operating	$ (42,000)
Record Sale in Investing	$ 215,000
Add Cost of asset sold for Investing	$ (446,000)	=∆ BS change - amt of cost sold for Purchase of Fixed assets/PPE
Add AD sold to ∆ AD on BS for Deprec. Exp.	$ 273,000	= ∆ AD from BS + AD sold for Deprec. Expense
Sum	0.00
No netting:	Portion of Balance Sheet
Current Portion of Long Term Debt	260,000	290,000	30,000	30,000
Accounts Payable	720,000	760,000	40,000	40,000
Accrued Expenses	50,000	40,000	(10,000)	(10,000)
Other Current Liabilities	23,000	11,000	(12,000)	(12,000)
Total Current Liabilities	1,053,000	1,101,000
Non-Current Liabilities
Long Term Debt	1,100,000	915,000	(185,000)	(185,000)
Current Portion	Long
Financing: Debt	Long Term Debt	Term Debt	Combined
$ 30,000	(185,000)	$ (155,000)
Example A: Acquired New Debt	$200,000
SO, if added	$200,000	AND Debt decreased	($155,000)
Then you paid	($355,000)
Shown both in Financing section of Cash Flow
Acquired new debt	$200,000
AND	Repayment of Debt	($355,000)
Example A: Paid existing Debt	$260,000
SO, if paid	$260,000	AND Debt decreased	($155,000)
Then you borrowed	$105,000
Shown both in Financing section of Cash Flow
Repayment of Debt	$260,000
AND	Acquired new debt	$105,000

ACC220---&P of &N---&D, &T,&F, &A---HCT

Dividends are Financing

Ch.15 Def

Ch. 15 Ratios
Ratio	Method of computation	Measure of	Significance	Better
Operating Profit [Income] Margin	Operating Profit/Net Sales	Risk	Measures profit generated after consideration of operating expenses	1	é
Net Profit [Income] Margin	Net Profit/Net Sales	Risk	Measures profit generated after consideration of all expenses and revenues	2	é
Gross Profit Margin	Gross Profit /Net Sales	Risk	Measures profit generated after consideration of cost of products sold	3	é
Working Capital	Current assets - current liabilities	Liquidity	Measures ability to meet current obligations from current assets	4	é
Current Ratio	Current Assets/Current Liabilities	Liquidity	Measures short term liquidity, the ability of firm to meet needs for cash as they arise	5	é
Quick or Acid Test	Current Assets – Inventory/Current Liabilities	Liquidity	Measures short term liquidity more rigorously than the Current Ratio by eliminating inventory (usually the least liquid asset)	6	é
Accounts Receivable Turnover	Net Sales /Avge,Accounts Receivable	Asset utilization	Indicates how many times receivables are collected during a year on average	7	é
Average Collection Period	Avge. Receivable/Net Sales/365 OR 365/AR turnover	Asset utilization	Indicates days required to convert receivables into cash	8	ê
Inventory Turnover	Cost of Good Sold/Avge.Inventory	Asset utilization	Measures efficiency of the firm in managing and selling inventory	9	é
Days of Inventory	365/Days of Inventory	Asset utilization	Measures efficiency of the firm in managing and selling inventory	10	ê
Total Asset Turnover	Net Sales/Total average Assets	Asset utilization	Measures efficiency of the firm in managing all assets	11	é
Earnings Per Common Share	Net Earnings/Average Common Shares Outstanding	Market Price	Shows return to common stock holder for each share owned	12	é
Times Interest Earned	Operating Profit/Interest Expense	Risk	Measures how many times interest expense is covered by operating earnings	13	é
Return on Equity	Net Earnings/Avge.Stockholder’s Equity	Profitability	Measures rate of return on stockholders (owners) investment	14	é
Price to Earnings	Market Price of Common Stock/Earnings Per Share	Market Price	Expresses multiple that the stock market places on firm’s earnings	15	é
Dividend Payout	Dividends Per Share/Earnings Per Share	Market Price	Shows percentage of earnings paid to shareholders	16	é
Dividend Yield	Dividends Per Share/Market Price of Common Stock	Market Price	Shows rate earned by shareholders from dividends relative to current price of stock	17	é
Return on Assets aka Return on Investment	Net Earnings/Average Total Assets	Profitability Asset Utilization	Measures overall efficiency of firm in managing assets and generating profits	18	é
Return on Common Equity	Net Earnings-Preferred dividends/average common equity	Profitability	Measures rate of return on stockholders (owners) investment	19	é
Book Value per Share	Ending Common equity /Ending common shares	20	é
Financial Leverage	Financial leverage results from the difference between the rate of return the company earns on investments in its own assets and the rate of return that the company must pay its creditors.	0	Measures efficient use of debt and use of assets	21	é
Debt To Equity	Total Liabilities/Stockholder’s Equity	Risk	Measures debt relative to equity base	22	ê
Debt Ratio	Total Liabilities/Total Assets	Risk	Shows proportion of all assets that are financed with debt	23	ê
Cash Flow Liquidity	Cash + Marketable Securities + Operating Cash Flows/Current Liabilities	Liquidity	Measure short term liquidity b considering as cash resources (numerator) cash plus cash equivalents plus cash flow from operating activities	24	é
Cash Flow Margin	Cash Flow from Operating Activities/Net Sales	Risk	Measures the ability of the firm to generate cash from sales	25	é
Cash Return on Assets	Cash Flow from Operating Activities/Average Total Assets	Asset Utilization	Measures the return on assets on a cash basis	26	é
Fixed Asset Turnover	Net Sales/Average Net Property, Plant and Equipment	Asset utilization	Measures efficiency of the firm in managing fixed assets	27	é
Fixed Charge Coverage	Operating Profit + Lease Payments/Interest Expense + Lease Payments	Risk	Measures coverage capability more broadly than times interest earned by including lease payments as fixed expenses	28	é
Long Term Debt to Total Capitalization	Long Term Debt/Long Term Debt + Stockholder’s Equity	Risk	Measures extent to which long term debt is used for permanent financing	29	ê
Ch. 15 Ratio Analysis-Financial Statement Analysis
Vertical	Horizontal	Trend
% ∆ from a base year
Period to Period
BS	IS	∆ 2xx1 from 2xx0
Total	Revenue	Either % or Amount or
Assets	[or Sales	Both
[Assets]	or Net Rev.]	∆ 2xx2from 2xx1
=	=	∆ 2xx3 from 2xx2
100%	100%	∆ 2xx4 from 2xx3
∆ 2xx5 from 2xx5
∆ 2xx1 from 2xx0
∆ 2xx2 from 2xx0
∆ 2xx3 from 2xx0
∆ 2xx4 from 2xx0
∆ 2xx5 from 2xx0

Use student Ch.15 File

Ch. 15 H and V

Cablevision	Comcast	Cablevision	Comcast	Chapter 15
12/31/2xx5	12/31/2xx5	12/31/2xx5	12/31/2xx5
Sales	6701	55842	100.0%	100.0%
Cost Of Goods	2969	37485	44.3%	67.1%
Gross Profit	3732	18357	55.7%	32.9%
Selling & Adminstrative & Depr. & Amort Expenses	2504	7636	37.4%	13.7%	Vertical
Income After Depreciation & Amortization [Oper.Income]	1229	10721	18.3%	19.2%	Analysis
Non-Operating Income	-59	-9	-0.9%	-0.0%
Interest Expense	747	2505	11.1%	4.5%
Pretax Income	423	8207	6.3%	14.7%
Income Taxes	184	3050	2.8%	5.5%
Minority Interest	0	997	0.0%	1.8%
Income From Cont. Operations	239	5157	3.6%	9.2%
Extras & Discontinued Operations	54	0	0.8%	0.0%
Net Income	292	4160	4.4%	7.4%
Depreciation Footnote
Income Before Depreciation & Amortization	2290	25144	34.2%	45.0%
Depreciation & Amortization (Cash Flow)	1062	14423	15.8%	25.8%
Income After Depreciation & Amortization	1229	10721	18.3%	19.2%
Earnings Per Share Data
Average Shares	285	2,778	4.3%	5.0%
Diluted EPS Before Non-Recurring Items	$ 1.03	$ 1.58
Diluted Net EPS	$ 1.02	$ 1.50
Cablevision	Comcast	Cablevision	Comcast	Vertical
12/31/2xx5	12/31/2xx5	12/31/2xx5	12/31/2xx5	Analysis
Assets
Cash & Equivalents	832	1,620	11.7%	1.0%
Receivables	302	4,351	4.2%	2.8%
Other Current Assets	305	2,602	4.3%	1.6%
Total Current Assets	1355	8,573	19.0%	5.4%
Net Property & Equipment	3269	27,559	45.8%	17.5%
Investments & Advances	318	9,854	4.5%	6.2%
Other Non-Current Assets	3	0	0.0%	0.0%
Deferred Charges	134	0	1.9%	0.0%
Intangibles	1992	104,415	27.9%	66.2%
Deposits & Other Assets	72	7,417	1.0%	4.7%
Total Assets	7143	157,818	100.0%	100.0%
0.0%	0.0%
Liabilities & Shareholder's Equity	0.0%	0.0%
Notes Payable	18	0	0.2%	0.0%
Accounts Payable	488	5,705	6.8%	3.6%
Current Portion Long-Term Debt	339	1,367	4.7%	0.9%
Current Portion Capital Leases	9	0	0.1%	0.0%
Accrued Expenses	604	5,379	8.5%	3.4%
Other Current Liabilities	137	790	1.9%	0.5%
Total Current Liabilities	1595	13,241	22.3%	8.4%
Mortgages	0	0	0.0%	0.0%
Deferred Taxes/Income	91	29,932	1.3%	19.0%
Long-Term Debt	10759	37,942	150.6%	24.0%
Non-Current Capital Leases	34	0	0.5%	0.0%
Other Non-Current Liabilities	224	13,034	3.1%	8.3%	Vertical
Minority Interest (Liabilities)	14	16,014	0.2%	10.1%	Analysis
Total Liabilities	12717	110,163	178.0%	69.8%
Shareholder's Equity
Common Stock (Par)	3	32	0.0%	0.0%
Capital Surplus	1051	40,940	14.7%	25.9%
Retained Earnings	-5245	13,971	-73.4%	8.9%
Other Equity	-20	229	-0.3%	0.1%
Treasury Stock	1364	7,517	19.1%	4.8%
Total Shareholder's Equity	-5574	47,655	-78.0%	30.2%
Total Liabilities & Shareholder's Equity	7143	157,818	100.0%	100.0%
Total Common Equity	-5574	47,655	-78.0%	30.2%
Shares Outstanding	279	2,705.90	3.9%	1.7%
Book Value Per Share	$ (19.95)	$ 17.61	-0.3%	0.0%
Five Years	Horizontal
Cablevision	December 31	Analysis	08 - 07	2007
2xx5	2xx4	2xx3	2xx2	2xx1	2xx5	2xx4	2xx3	2xx2	2xx2	Base	$Δ
Sales	6,701	7,231	7,773	7,230	6,484	-7.3%	-7.0%	7.5%	11.5%	746	6,484	11.5%
Cost Of Goods	2,969	3,008	3,369	3,244	2,891	-1.3%	-10.7%	3.8%	12.2%	353	2,891	12.2%
Gross Profit	3,732	4,223	4,404	3,986	3,593	-11.6%	-4.1%	10.5%	10.9%	393	3,593	10.9%
Selling & Adminstrative & Depr. & Amort Expenses	2,504	2,694	2,989	3,296	2,677	-7.1%	-9.8%	-9.3%	23.1%	619	2,677	23.1%
Income After Depreciation & Amortization [Oper.Income]	1,229	1,529	1,415	690	916	-19.6%	8.0%	105.2%	-24.7%	(226)	916	-24.7%
Non-Operating Income	(59)	(151)	(141)	(202)	124	-60.8%	6.8%	-30.2%	-262.4%	(327)	124	-262.4%
Interest Expense	747	787	753	797	806	-5.1%	4.5%	-5.5%	-1.2%	(9)	806	-1.2%
Pretax Income	423	591	521	(309)	234	-28.4%	13.5%	-268.4%	-232.3%	(543)	234	-232.3%
Income Taxes	184	226	236	(83)	135	-18.2%	-4.3%	-385.1%	-161.4%
Minority Interest	0	1	(0)	0	0	-34.4%	-337.0%	ERROR:#DIV/0!	ERROR:#DIV/0!
Income From Cont. Operations	239	366	285	(227)	99	-34.7%	28.2%	-225.9%	-328.5%
Extras & Discontinued Operations	54	(4)	(0)	(1)	195	-1401.5%	41100.0%	-98.9%	-100.5%
Net Income	292	361	286	(228)	294	-19.1%	26.4%	-225.5%	-177.4%
ERROR:#DIV/0!	ERROR:#DIV/0!	ERROR:#DIV/0!	ERROR:#DIV/0!
Depreciation Footnote	ERROR:#DIV/0!	ERROR:#DIV/0!	ERROR:#DIV/0!	ERROR:#DIV/0!
Income Before Depreciation & Amortization	2,290	2,812	2,771	2,442	2,259	-18.6%	1.5%	13.5%	8.1%
Depreciation & Amortization (Cash Flow)	1,062	1,283	1,355	1,752	1,344	-17.3%	-5.3%	-22.6%	30.4%
Income After Depreciation & Amortization	1,229	1,529	1,415	690	916	-19.6%	8.0%	105.2%	-24.7%
ERROR:#DIV/0!	ERROR:#DIV/0!	ERROR:#DIV/0!	ERROR:#DIV/0!
Earnings Per Share Data	ERROR:#DIV/0!	ERROR:#DIV/0!	ERROR:#DIV/0!	ERROR:#DIV/0!
Average Shares	285	302	298	290	295	-5.6%	1.2%	2.8%	-1.5%
Diluted EPS Before Non-Recurring Items	$ 1.03	$ 1.21	$ 1.13	$ 0.94	$ 0.09	-14.9%	7.1%	20.2%	944.4%
Diluted Net EPS	$ 1.02	$ 1.20	$ 0.96	$ (0.78)	$ 0.74	-15.0%	25.0%	-223.1%	-205.4%
Five Years	Horizontal
Comcast	Analysis
12/31/11	12/31/10	12/31/09	12/31/08	12/31/07	12/31/11	12/31/10	12/31/09	12/31/08
Sales	55,842	37,937	35,756	34,256	30,895	47.2%	6.1%	4.4%	10.9%
Cost Of Goods	37,485	15,250	14,396	13,472	11,175	145.8%	5.9%	6.9%	20.6%
Gross Profit	18,357	22,687	21,360	20,784	19,720	-19.1%	6.2%	2.8%	5.4%
Selling & Adminstrative & Depr. & Amort Expenses	7,636	14,707	14,146	14,052	14,142	-48.1%	4.0%	0.7%	-0.6%
Income After Depreciation & Amortization [Oper.Income]	10,721	7,980	7,214	6,732	5,578	34.3%	10.6%	7.2%	20.7%
Non-Operating Income	-9	280	240	-235	1,060	-103.2%	16.7%	-202.1%	-122.2%
Interest Expense	2,505	2,156	2,348	2,439	2,289	16.2%	-8.2%	-3.7%	6.6%
Pretax Income	8,207	6,104	5,106	4,058	4,349	34.5%	19.5%	25.8%	-6.7%
Income Taxes	3,050	2,436	1,478	1,533	1,800	25.2%	64.8%	-3.6%	-14.8%
Minority Interest	997	33	-10	-22	-38	2921.2%	-430.0%	-54.5%	-42.1%
Investment Gains/Losses	0	0	0	0	0	ERROR:#DIV/0!	ERROR:#DIV/0!	ERROR:#DIV/0!	ERROR:#DIV/0!
Other Income/Charges	0	0	0	0	0	ERROR:#DIV/0!	ERROR:#DIV/0!	ERROR:#DIV/0!	ERROR:#DIV/0!
Income From Cont. Operations	5,157	3,668	3,628	2,547	2,587	40.6%	1.1%	42.4%	-1.5%
Extras & Discontinued Operations	0	0	0	0	0	ERROR:#DIV/0!	ERROR:#DIV/0!	ERROR:#DIV/0!	ERROR:#DIV/0!
Net Income	4,160	3,635	3,638	2,547	2,587	14.4%	-0.1%	42.8%	-1.5%
ERROR:#DIV/0!	ERROR:#DIV/0!	ERROR:#DIV/0!	ERROR:#DIV/0!
Depreciation Footnote	ERROR:#DIV/0!	ERROR:#DIV/0!	ERROR:#DIV/0!	ERROR:#DIV/0!
Income Before Depreciation & Amortization	25,144	14,596	13,714	13,132	11,786	72.3%	6.4%	4.4%	11.4%
Depreciation & Amortization (Cash Flow)	14,423	6,616	6,500	6,400	6,208	118.0%	1.8%	1.6%	3.1%
Income After Depreciation & Amortization	10,721	7,980	7,214	6,732	5,578	34.3%	10.6%	7.2%	20.7%
ERROR:#DIV/0!	ERROR:#DIV/0!	ERROR:#DIV/0!	ERROR:#DIV/0!
Earnings Per Share Data	ERROR:#DIV/0!	ERROR:#DIV/0!	ERROR:#DIV/0!	ERROR:#DIV/0!
Average Shares	2,778	2,820	2,885	2,952	3,129	-1.5%	-2.3%	-2.3%	-5.7%
Diluted EPS Before Non-Recurring Items	$ 1.58	$ 1.31	$ 1.10	$ 0.91	$ 0.74	20.6%	19.1%	20.9%	23.0%
Diluted Net EPS	$ 1.50	$ 1.29	$ 1.26	$ - 0	16.3%	2.4%	ERROR:#DIV/0!	ERROR:#DIV/0!
Cablevision	Horizontal
Analysis -- TREND
Assets	12/31/11	12/31/10	12/31/09	12/31/08	12/31/07	12/31/11	12/31/10	12/31/09	12/31/08
Cash & Equivalents	832	631	498	515	586	31.9%	26.7%	-3.3%	-12.2%
Receivables	302	543	615	605	543	-44.4%	-11.6%	1.7%	11.4%
Other Current Assets	305	574	1,464	1,025	998	-46.8%	-60.8%	42.9%	2.6%
Total Current Assets	1,355	1,640	2,055	1,859	2,128	-17.4%	-20.2%	10.6%	-12.6%
Net Property & Equipment	3,269	3,431	3,316	3,473	3,472	-4.7%	3.5%	-4.5%	0.0%
Investments & Advances	318	236	226	181	668	34.7%	4.4%	24.7%	-72.9%
Other Non-Current Assets	3	23	40	45	41	-85.9%	-42.2%	-11.6%	11.3%
Deferred Charges	134	360	246	253	1,269	-62.9%	46.7%	-2.8%	-80.1%
Intangibles	1,992	2,509	2,779	2,896	1,809	-20.6%	-9.7%	-4.0%	60.1%
Deposits & Other Assets	72	642	664	676	123	-88.7%	-3.4%	-1.8%	451.2%
Total Assets	7,143	8,841	9,326	9,383	9,510	-19.2%	-5.2%	-0.6%	-1.3%
ERROR:#DIV/0!	ERROR:#DIV/0!	ERROR:#DIV/0!	ERROR:#DIV/0!
Liabilities & Shareholder's Equity	ERROR:#DIV/0!	ERROR:#DIV/0!	ERROR:#DIV/0!	ERROR:#DIV/0!
Notes Payable	18	0	0	6	830	ERROR:#DIV/0!	ERROR:#DIV/0!	-100.0%	-99.2%
Accounts Payable	488	508	401	386	370	-3.9%	26.7%	4.0%	4.3%
Current Portion Long-Term Debt	339	695	531	693	0	-51.2%	30.7%	-23.3%	ERROR:#DIV/0!
Current Portion Capital Leases	9	6	6	5	5	50.3%	6.3%	8.1%	-0.7%
Accrued Expenses	604	718	801	894	801	-15.9%	-10.3%	-10.4%	11.6%
Other Current Liabilities	137	235	331	313	312	-41.7%	-29.0%	5.8%	0.3%
Total Current Liabilities	1,595	2,162	2,070	2,297	2,318	-26.2%	4.4%	-9.9%	-0.9%
Mortgages	0	0	0	0	0	ERROR:#DIV/0!	ERROR:#DIV/0!	ERROR:#DIV/0!	ERROR:#DIV/0!
Deferred Taxes/Income	91	11	556	174	582	702.8%	-98.0%	219.1%	-70.1%
Long-Term Debt	10,759	12,081	10,789	11,229	9,225	-10.9%	12.0%	-3.9%	21.7%
Non-Current Capital Leases	34	45	51	57	60	-26.0%	-10.7%	-10.2%	-5.9%
Other Non-Current Liabilities	224	821	1,003	980	756	-72.7%	-18.1%	2.3%	29.7%
Minority Interest (Liabilities)	14	15	12	8	1	-6.3%	20.7%	56.8%	557.6%
Total Liabilities	12,717	15,136	14,481	14,745	12,942	-16.0%	4.5%	-1.8%	13.9%
Shareholder's Equity
Common Stock (Par)	3	3	3	3	0	0.6%	1.5%	1.9%	2827.3%
Capital Surplus	1,051	6	90	137	183	16176.0%	-92.8%	-34.5%	-25.0%
Retained Earnings	(5,245)	(5,495)	(4,750)	(5,034)	(3,618)	-4.5%	15.7%	-5.6%	39.1%
Other Equity	(20)	(22)	(49)	(35)	3	-10.1%	-55.7%	40.6%	-1350.0%
Treasury Stock	1,364	789	450	433	0	72.9%	75.4%	3.7%
Total Shareholder's Equity	(5,574)	(6,295)	(5,155)	(5,362)	(3,432)	-11.5%	22.1%	-3.9%	56.2%
Total Liabilities & Shareholder's Equity	7,143	8,841	9,326	9,383	9,510	-19.2%	-5.2%	-0.6%	-1.3%
Total Common Equity	(5,574)	(6,295)	(5,155)	(5,362)	(3,432)	-11.5%	22.1%	-3.9%	56.2%
Shares Outstanding	279	300	302	297	294	-6.9%	-0.6%	1.6%	1.0%
Book Value Per Share	$ (19.95)	$ (20.98)	$ (17.09)	$ (18.05)	$ (11.67)	-4.9%	22.8%	-5.3%	54.7%
Comcast	Horizontal
Analysis -- Trend
Assets	12/31/11	12/31/10	12/31/09	12/31/08	12/31/07	12/31/11	12/31/10	12/31/09	12/31/08
Cash & Equivalents	1,620	6,065	721	1,254	1,061	-73.3%	741.2%	-42.5%	18.2%
Receivables	4,351	1,855	1,711	1,626	1,645	134.6%	8.4%	5.2%	-1.2%
Other Current Assets	2,602	1,140	1,031	1,128	961	128.2%	10.6%	-8.6%	17.4%
Total Current Assets	8,573	8,886	3,223	3,716	3,667	-3.5%	175.7%	-13.3%	1.3%
Net Property & Equipment	27,559	23,515	23,855	24,444	23,624	17.2%	-1.4%	-2.4%	3.5%
Investments & Advances	9,854	6,670	5,947	4,783	7,963	47.7%	12.2%	24.3%	-39.9%
Intangibles	104,415	78,002	78,490	78,896	77,521	33.9%	-0.6%	-0.5%	1.8%
Deposits & Other Assets	7,417	1,461	1,218	1,178	642	407.7%	20.0%	3.4%	83.5%
Total Assets	157,818	118,534	112,733	113,017	113,417	33.1%	5.1%	-0.3%	-0.4%
Liabilities & Shareholder's Equity
Accounts Payable	5,705	3,291	3,094	3,393	3,336	73.4%	6.4%	-8.8%	1.7%
Current Portion Long-Term Debt	1,367	1,800	1,156	2,278	1,495	-24.1%	55.7%	-49.3%	52.4%
Accrued Expenses	5,379	3,143	2,999	624	494	71.1%	4.8%	380.6%	26.3%
Other Current Liabilities	790	0	0	2,644	2,627	-100.0%	0.6%
Total Current Liabilities	13,241	8,234	7,249	8,939	7,952	60.8%	13.6%	-18.9%	12.4%
Deferred Taxes/Income	29,932	28,246	27,800	26,982	26,880	6.0%	1.6%	3.0%	0.4%
Long-Term Debt	37,942	29,615	27,940	30,178	29,828	28.1%	6.0%	-7.4%	1.2%
Other Non-Current Liabilities	13,034	7,862	6,767	6,171	7,167	65.8%	16.2%	9.7%	-13.9%
Minority Interest (Liabilities)	16,014	143	166	297	250	11098.6%	-13.9%	-44.1%	18.8%
Total Liabilities	110,163	74,100	69,922	72,567	72,077	48.7%	6.0%	-3.6%	0.7%
Shareholder's Equity
Common Stock (Par)	32	32	32	33	34	0.0%	0.0%	-3.0%	-2.9%
Capital Surplus	40,940	39,780	40,247	40,620	41,688	2.9%	-1.2%	-0.9%	-2.6%
Retained Earnings	13,971	12,158	10,005	7,427	7,191	14.9%	21.5%	34.7%	3.3%
Other Equity	229	-19	44	-113	-56	-1305.3%	-143.2%	-138.9%	101.8%
Treasury Stock	7,517	7,517	7,517	7,517	7,517	0.0%	0.0%	0.0%	0.0%
Total Shareholder's Equity	47,655	44,434	42,811	40,450	41,340	7.2%	3.8%	5.8%	-2.2%
Total Liabilities & Shareholder's Equity	157,818	118,534	112,733	113,017	113,417	33.1%	5.1%	-0.3%	-0.4%
Total Common Equity	47,655	44,434	42,811	40,450	41,340	7.2%	3.8%	5.8%	-2.2%
Shares Outstanding	2,705.90	2,776.50	2,837.50	2,880.60	3,011	-2.5%	-2.1%	-1.5%	-4.3%
Book Value Per Share	$ 17.61	$ 16.00	$ 15.09	$ 14.04	$ 13.73	10.1%	6.0%	7.5%	2.3%

HCT---ACC220---&P of &N---&D,&T---&F,&A

Use student Ch.15 File

Ch. 15 Ratios

Ratio Definitions [1]	Ch. 15 Financial Ratios	FORD MOTOR COMPANY AND SUBSIDIARIES
these ar ratios for HW	CONSOLIDATED STATEMENT OF OPERATIONS
PE = Period End	For the Years Ended December 31, 2011, 2010, and 2009
(in millions, except per share amounts)
1	Current ratio
PE Current assets / Current liabilities
2011	2010	2009
2	Quick Ratio
PE Cash + Marketable securities + Short term investment + A/R / Current liabilities	Revenues
Total revenues	136,264	128,954	116,283
3	Average collection period [days]
365 X [ 2 pt average A/R / Net credit sales]	Costs and expenses
CoGS	113,345	104,451	98,866
OR 365 / A/R turnover
Selling, administrative and other expenses	11,578	11,909	13,029
5	A/R turnover [ assume all sales are credit sales]
Net Credit Sales (or Revenue) / 2 pt. average A/R	Interest expense	4,431	6,152	6,790
Note: if unknown assume all line sales, revenue are credit
6	Inventory turnover	Financial Services provision for credit and insurance losses	-33	-216	1,030
Net Credit Sales (or Revenue) / 2 pt. average A/R	Total costs and expenses	129,321	122,296	119,715
7	Inventory days
365 / Inventory turnover	Automotive interest income and other non-operating income/(expense),	825	(362	5,284
8	Fixed asset turnover	Financial Services other income/(loss), net (Note 19)	413	315	552
Net sales or revenue / Net Fxd. Assets	Equity in net income/(loss) of affiliated companies	500	538	195
9	Debt ratio	Income/(Loss) before income taxes	8,681	7,149	2,599
Total assets / Total liabilities
Provision for/(Benefit from) income taxes (Note 22)	-11541	592	-113
10	Debt to equity
Total liabilities / Total equity	Income/(Loss) from continuing operations	20,222	6,557	2,712
11	Times interest earned	Ratio Definitions [2]	Income/(Loss) from discontinued operations	—	—	5
Net income before interest & taxes / [Interest expense - interest income]
this = net interest expense	Net income/(loss)	20,222	6,557	2,717
12	Gross Profit %
[Revenue - CoGS] / Net sales, revenue	Less: Income/(Loss) attributable to noncontrolling interests	9	(4	—
13	Operating income %	Net income/(loss) attributable to Ford Motor Company	$	$	$
Operating income / Sales or revenue
14	Net income %	NET INCOME/(LOSS) ATTRIBUTABLE TO FORD MOTOR COMPANY
Net income [bottom line] / net sales or revenue	Income/(Loss) from continuing operations	$	$	$
15	Return on assets [ROI]	Net income/(loss) attributable to Ford Motor Company	$	$	$
Net income / 2 pt. average total assets
Less: Income/(Loss) attributable to noncontrolling interests	9	-4
16	PE ratio
Net income per share / stock price per share	Net income/(loss) attributable to Ford Motor Company	20,213	6,561	2,717
17	Earnings per share [undiluted]
Stock price per share = Net income for s	NET INCOME/(LOSS) ATTRIBUTABLE TO FORD MOTOR COMPANY
common stock / average fully dilutes common shares	Income/(Loss) from continuing operations	20,213	6,561	2,712
18	RO Equity
Net income / 2 pt average equity	Income/(Loss) from discontinued operations	5
19	Income statement & BS Vertical analysis	Net income/(loss) attributable to Ford Motor Company	20,213	6,561	2,717
For IS Sales OR revenue = 100% divide all by sales or revenue
For BS Assets = 100%, divide all by Assets
20	IS Horizontal analysis
Difference from prior [older] period / prior period
21	BV per common share
Equity / Average # fully diluted common shares
22	Working capital
Current assets - Current liabilities
TimeWarner [TWX]	VERTICAL ANALYSIS: COMMON	CBS [CBS]
WITHOUT NON-RECURRING ITEMS
PERIOD ENDING	9/30/20x1	%	%	9/30/20x1	PERIOD ENDING
Cash And Cash Equivalents	4,355,000	3.2%	2.0%	553,100	Cash And Cash Equivalents
Net Receivables	6,653,000	4.9%	11.4%	3,096,900	Net Receivables
Inventory	2,061,000	1.5%	2.9%	781,500	Inventory
Other Current Assets	1,623,000	1.2%	2.9%	786,300	Other Current Assets
Total Current Assets	14,692,000	10.7%	19.2%	5,217,800	Total Current Assets
Long Term Investments	1,907,000	1.4%	0.0%	0	Long Term Investments
Property Plant and Equipment	23,646,000	17.3%	16.9%	4,583,000	Property Plant and Equipment
Goodwill	42,450,000	31.0%	32.7%	8,897,100	Goodwill
Intangible Assets	52,120,000	38.1%	25.7%	6,980,800	Intangible Assets
Other Assets	1,913,000	1.4%	5.5%	1,495,000	Other Assets
Deferred Long Term Asset Charges	-	-	Deferred Long Term Asset Charges
Total Assets	136,728,000	100.0%	100.0%	27,173,700	Total Assets
Accounts Payable	5,289,000	3.9%	12.5%	3,397,300	Accounts Payable
Short/Current Long Term Debt	125,000	0.1%	0.1%	15,800	Short/Current Long Term Debt
Other Current Liabilities	6,556,000	4.8%	4.6%	1,259,100	Other Current Liabilities
Total Current Liabilities	11,970,000	8.8%	17.2%	4,672,200	Total Current Liabilities
Long Term Debt	37,867,000	27.7%	26.1%	7,084,300	Long Term Debt
Other Liabilities	6,972,000	5.1%	20.9%	5,667,700	Other Liabilities
Deferred Long Term Liability Charges	15,159,000	11.1%	2.1%	573,400	Deferred Long Term Liability Charges
Minority Interest	4,524,000	3.3%	0.0%	2,600	Minority Interest
Total Liabilities	76,492,000	55.9%	66.2%	18,000,200	Total Liabilities
Redeemable Preferred Stock	300,000	0.2%	-	Redeemable Preferred Stock
Common Stock	49,000	0.0%	0.0%	800	Common Stock
Retained Earnings	-86,637,000	-63.4%	-113.1%	-30,734,300	Retained Earnings
Treasury Stock	-25,836,000	-18.9%	-13.6%	-3,693,400	Treasury Stock
Capital Surplus	172,609,000	126.2%	160.6%	43,651,500	Capital Surplus
Other Stockholder Equity	-249,000	-0.2%	-0.2%	-51,100	Other Stockholder Equity
Total Stockholder Equity	59,936,000	43.8%	33.8%	9,173,500	Total Stockholder Equity
Net Tangible Assets	($34,634,000)	-25.3%	-24.7%	($6,704,400)	Net Tangible Assets
PERIOD ENDING	30-Sep-08	30-Sep-08	PERIOD ENDING
Total Revenue	11,706,000	100.0%	100.0%	3,375,700	Total Revenue
Cost of Revenue	6,664,000	56.9%	60.7%	2,050,200	Cost of Revenue
Gross Profit	5,042,000	43.1%	39.3%	1,325,500	Gross Profit
Selling General and Administrative	2,419,000	20.7%	20.2%	680,800	Selling General and Administrative
Others	206,000	1.8%	4.1%	139,700	Others
Total Operating Expenses	2,625,000	22.4%	24.3%	820,500	Total Operating Expenses
Operating Income or Loss	2,417,000	20.6%	15.0%	505,000	Operating Income or Loss
Total Other Income/Expenses Net	104,000	-34,900	Total Other Income/Expenses Net	14,123,100
Earnings Before Interest And Taxes	2,521,000	470,100	Earnings Before Interest And Taxes
Interest Expense	623,000	5.3%	4.0%	134,800	Interest Expense
Income Before Tax	1,898,000	335,300	Income Before Tax
Income Tax Expense	655,000	100,590	Income Tax Expense
Minority Interest [memo]	-96,000	-500	Minority Interest [memo]
Net Income From Continuing Ops	1,243,000	10.6%	7.0%	234,710	Net Income From Continuing Ops
Discontinued Operations	1,000	0.0%	0	Discontinued Operations
Net Income	1,244,000	10.6%	234,710	Net Income
Net Income Applicable To Common Shares	$1,244,000	10.6%	7.0%	$234,710	Net Income Applicable To Common Shares
Horizontal Analysis -- See PPT slides
Horizontal Analysis
Use for Ratios in class	Sample company [1]	Use for Ratios in class	Sample company [2]
FORD MOTOR COMPANY AND SUBSIDIARIES	Simplified
CONSOLIDATED STATEMENT OF OPERATIONS	Class Company, Inc.
For the Years Ended December 31, 2xx3, 2xx2, and 2xx1	[This is #2 data set from Cash Flow]	Balance Sheet as of
(in millions, except per share amounts)	12/31/2xx1	12/31/2xx2
2xx3	2xx2	2xx1	Assets:
Revenues	Current Assets:	$s	$s
Total revenues	136,264	128,954	116,283	Cash	200,000	252,110
Accounts Receivable	385,100	438,000
Costs and expenses	Prepaid Expenses	33,000	29,000
CoGS	113,345	104,451	98,866	Inventory	600,000	700,000
Selling, administrative and other expenses	11,578	11,909	13,029	Other Current Assets	22,000	7,000
Operating Income	11,341	12,594	4,388	Total Current Assets:	1,240,100	1,426,110
Interest expense	4,431	6,152	6,790	Plant Property & Equipment	2,100,000	2,740,000
Cr. Balance	Less: Accum. Depreciation	600,000	760,000
Financial Services provision for credit and insurance losses	(33)	(216)	1,030	Net Plant Property & Equipment	1,500,000	1,980,000
Total costs and expenses	129,321	122,296	119,715
Other Non-Current Assets:
Intangibles	500,000	480,000
Automotive interest income and other non-operating income/(expense),	825	(362	5,284	77,403	Deferred Loan Placement Costs	30,000	30,000
Financial Services other income/(loss), net (Note 19)	413	315	552	373	Other Non-Current assets	41,000	37,000
Equity in net income/(loss) of affiliated companies	500	538	195	207.3	Total Other Non-Current Assets	571,000	547,000
Income/(Loss) before income taxes	8,681	7,149	2,599	Total Assets	3,311,100	3,953,110
Provision for/(Benefit from) income taxes (Note 22)	(11,541)	592	(113)	Liabilities:
Current Portion of Long Term Debt	260,000	290,000
Income/(Loss) from continuing operations	20,222	6,557	2,712	Accounts Payable	720,000	760,000
Accrued Expenses	50,000	40,000
Income/(Loss) from discontinued operations	—	—	5	Other Current Liabilities	23,000	11,000
Total Current Liabilities	1,053,000	1,101,000
Net income/(loss)	20,222	6,557	2,717
all attributable to common	Non-Current Liabilities
Long Term Debt	1,100,000	915,000
Deferred Income Taxes	55,000	71,000
FORD MOTOR COMPANY AND SUBSIDIARIES	Other Non-current Liabilities	3,000	5,000
SECTOR BALANCE SHEET	Total Non-Current Liabilities	1,158,000	991,000	991,000	3,953,110
(in millions)
ASSETS	December 31,	December 31	Total Liabilities	2,211,000	2,092,000
Automotive & Fin initial services	2xx3	2xx2
Cash and cash equivalents	17,148	14,805	Owners Equity
Marketable securities (Note 6)	18,819	20,966	Common Stock @ par = $0.01	100	110
Total cash and marketable securities	35,967	35,771	Cash for cash flow	Additional Paid-in Capital	700,000	756,000
41,656	Dividends [before closing entries]	49,000
Receivables, less allowances of $126 and $228	77,549	77,257	10,384	Retained Earnings	400,000	1,056,000	0.0408333333
Inventories (Note 10)	5,901	5,917	Total Owners' Equity	1,100,100	1,861,110	1,480,605
Deferred income taxes	1,791	359
Net investment in operating leases (Note 8)	1,356	1,282	Total Liabilities and Owners Equity	3,311,100	3,953,110
Other current assets	1,053	610
Current receivable from Financial Services (Note 1)	878	1,700	Ending # of Common Shares	1,057,000	1,200,000	0.0408333333
Total current assets	124,495	122,896	Check	0	0
Equity in net assets of affiliated companies (Note 11)	2,797	2,441	Note: in this example we have Intangibles - which is also a non-cash charge to income
Net property (Note 14)	22,229	23,027	like depreciation - so we add that back to net income just like deprecation:
Deferred income taxes	13,932	2,468
Net intangible assets (Note 15)	100	102
Non-current receivable from Financial Services (Note 1)	32	181	1.76	Class Company, Inc.
Net investment in operating leases (Note 8)	11,482	10,393	Statement of Income
Equity in net assets of affiliated companies (Note 11)	139	128	Period Ending 12/31/2xx2
Other assets	5,154	6,240	$s	$s
Total Non-current assets	55,865	44,980	Revenue [all credit sales]	7,000,000	100.0%
Intersector elimination	(1,112)	(2,083)
Total assets	179,248	165,793	Cost of Goods Sold	4,500,000	64.3%
LIABILITIES	Gross Profit	2,500,000	35.7%
Trade payables	14,990	14,818	24233
Other payables	2,734	1,544	179,248	Operating Expenses:	1,358,000	19.4%
Accrued liabilities and deferred revenue (Note 16)	15,003	17,065	20,222	Operating Income	1,142,000	16.3%
Deferred income taxes	40	392	4,431
Debt payable within one year (Note 18)	1,943	3,930	0.7	Other Income/Gain	0	0.0%
Total current liabilities	32,825	34,516	3101.7
23,324	Provision for Income Taxes	505,000	7.2%
Non-current	13.5%
Long-term debt (Note 18)	98,656	102,140	Operating Income	1,142,000	16.3%
Other liabilities (Note 16)	26,910	23,016
Deferred income taxes	255	344	Interest Expense	142,000
Other liabilities and deferred income	38,558	41,137	Other Income	6,000	0.1%
Payable to Automotive (Note 1)	910	1,881
Total Non-current	165,289	168,518	Income Before Taxes	1,006,000	14.4%
Taxes	350,000	5.0%	34.8%	tax rate 350000 / 1006000
Intersector elimination	(1,112)	(2,083)
Total liabilities	164,177	166,435	Net Income	656,000	9.4%
0	0
EQUITY	Tax rate = 40%
Capital stock (Note 24)	2xx3	2xx2	Class Company, Inc.	0	0
Common Stock, par value $.01 per share (3,745 million shares issued)	37	37	Number of Shares	OI %	16.31%	1
Class B Stock, par value $.01 per share (71 million shares issued)	1	1	3.8 billion	NI %	9.4%	2
Capital in excess of par value of stock	20,905	20,803	GP $	2,500,000	3
Retained earnings/(Accumulated deficit)	12,985	(7,038)	Dividends Ex.only	GP %	35.7%	4
Accumulated other comprehensive income/(loss)	(18,734)	(14,313)	$ 0.25	WC $	325,110	5
Treasury stock	(166)	(163)	Current ratio	1.30	6
Total equity/(deficit) attributable to Ford Motor Company	15,028	(673)	Stock Price/share	Quick Ratio aka Acid test Ratio	0.61	7
Equity/(Deficit) attributable to noncontrolling interests	43	31	$ 9.50	A/R Turns	17.01	8
Total equity/(deficit)	15,071	(642)	Credit Sales per day	19178	9
Total liabilities and equity	179,248	165,793	A/R turnover Days	20.1	10
Inventory turnover	6.9	11
FORD MOTOR COMPANY AND SUBSIDIARIES	2xx3	Days of inventory = average sale period	52.7	12
11341 / 136264	OI %	8.32%	1	Asset turnover	1.93	13
20222 / 136264	NI %	14.8%	2	Acctg. ROA [aka ROI] %	18.1%	14
136264 - 113345	GP $	22,919	3	Return on Total Assets	24.3%	15	Interest AT added
[136264 - 113345 ] / 136264	GP %	16.8%	4	Return on Total Assets	18.1%	16	No interest added
124495 - 32825	WC $	91,670	5	EPS [common share]	$0.58	17	see PPT for Preferred stcok
124495 / 32825	Current ratio	3.79	6	Times interest [expense] only	8.04	18
Quick Ratio aka Acid test Ratio	3.61	7	[124495 - 5901]/32825	ROE %	44.3%	19	average equity
A/R Turns	1.76	8	136264/avge77257,77549	PE Ratio	17.20	20
Credit Sales per day	373	9	Dividend payout ratio	7.0%	21
A/R turnover Days	207.3	10	365 / AR turns	Dividend yield ratio	0.4%	22
Inventory turnover	19.2	11	113345/avge5901,5917	Return common equity	44.3%	23	see PPT for Preferred stcok
Days of inventory = average sale period	19.0	12	365/19.2	BV per share	$1.55	24
Asset turnover	0.79	13	136264/avge179248,165793	$10.00	Market price per share
Acctg. ROA [aka ROI] %	11.7%	14	Averages begin	Debt to equity ratio	1.12	25
20222/avge1792498,165793	Debt to asset ratio	0.53	26
Return on Total Assets [tax @30%]	13.5%	15	Interest AT added
Return on Total Assets	11.7%	16	No interest added
20222/avge(179248,165793
EPS [common share]	$5.32	17	20222/3800[avge]
Times interest [expense] only	2.56	18	11341/4431	Example A
ROE %	280.3%	19	20222/av.15071,[642]	Net Income	$ 1,500,000
PE Ratio	1.79	20	9.50/5.32	Preferred shares	115,000
Dividend payout ratio	4.7%	21	.25/5.32	Dividends per preferred share	$1.20
Dividend yield ratio	2.6%	22	.25/9.50	Paid to preferred	$138,000
Return common equity	280.3%	23	Have only common in this ex.	20,222	Income for Common shares	$1,362,000
BV per share	$3.97	24	15071/3800	7,215	Average # of Common shares	950,000
$10.00	Market price per share Sept'12	EPS per common share	$1.43
Debt to equity ratio	10.9	25	164177/15071
Debt to asset ratio	0.92	26
Example B
Net Income	$ 2,770,000
Preferred shares	1,200,000
Dividends per preferred share	$2.00
Paid to preferred	$2,400,000
Income for Common shares	$370,000
Average # of Common shares	1,300,000
EPS per common share	$0.28

ACC220---HCT---&P of &N---&D,&T---&F,&A

Use student Ch.15 File

Ch.15 FinRatio-Trend

ClassCo	TREND
Year
Item	2xx5	2xx4	2xx3	2xx2	2xx1
Sales	$ 400,000	$ 355,000	$ 320,000	$ 290,000	$ 275,000
Cost of goods sold	285,000	250,000	225,000	198,000	190,000
Gross margin	115,000	105,000	95,000	92,000	85,000
Year
Item	2xx5	2xx4	2xx3	2xx2	2xx1
Sales	145.5%	129.1%	116.4%	105.5%	100.0%
Cost of goods sold	150.0%	131.6%	118.4%	104.2%	100.0%
Gross margin	135.3%	123.5%	111.8%	108.2%	100.0%
See Separate File
1.1267605634

HCT---&P of &N---&D,&T---&F,&A

By analyzing the trends for ClassCO, we can see that cost of goods sold is increasing faster than sales, which is slowing the increase in gross margin.

Trend lines shown with option of two forward periods; option to display Y=a+bX formula as well and least squares coefficient

Use student Ch.15 File

Ch.15 HW helper

Ratio Definitions [1]	Ch. 15 Financial Ratios	FORD MOTOR COMPANY AND SUBSIDIARIES
these ar ratios for HW	CONSOLIDATED STATEMENT OF OPERATIONS
PE = Period End	For the Years Ended December 31, 2011, 2010, and 2009
(in millions, except per share amounts)
1	Current ratio
PE Current assets / Current liabilities
2011	2010	2009
2	Quick Ratio
PE Cash + Marketable securities + Short term investment + A/R / Current liabilities	Revenues
Total revenues	136,264	128,954	116,283
3	Average collection period [days]
365 X [ 2 pt average A/R / Net credit sales]	Costs and expenses
CoGS	113,345	104,451	98,866
OR 365 / A/R turnover
Selling, administrative and other expenses	11,578	11,909	13,029
5	A/R turnover [ assume all sales are credit sales]
Net Credit Sales (or Revenue) / 2 pt. average A/R	Interest expense	4,431	6,152	6,790
Note: if unknown assume all line sales, revenue are credit
6	Inventory turnover	Financial Services provision for credit and insurance losses	-33	-216	1,030
Net Credit Sales (or Revenue) / 2 pt. average A/R	Total costs and expenses	129,321	122,296	119,715
7	Inventory days
365 / Inventory turnover	Automotive interest income and other non-operating income/(expense),	825	(362	5,284
8	Fixed asset turnover	Financial Services other income/(loss), net (Note 19)	413	315	552
Net sales or revenue / Net Fxd. Assets	Equity in net income/(loss) of affiliated companies	500	538	195
9	Debt ratio	Income/(Loss) before income taxes	8,681	7,149	2,599
Total assets / Total liabilities
Provision for/(Benefit from) income taxes (Note 22)	-11541	592	-113
10	Debt to equity
Total liabilities / Total equity	Income/(Loss) from continuing operations	20,222	6,557	2,712
11	Times interest earned	Ratio Definitions [2]	Income/(Loss) from discontinued operations	—	—	5
Net income before interest & taxes / [Interest expense - interest income]
this = net interest expense	Net income/(loss)	20,222	6,557	2,717
12	Gross Profit %
[Revenue - CoGS] / Net sales, revenue	Less: Income/(Loss) attributable to noncontrolling interests	9	(4	—
13	Operating income %	Net income/(loss) attributable to Ford Motor Company	$	$	$
Operating income / Sales or revenue
14	Net income %	NET INCOME/(LOSS) ATTRIBUTABLE TO FORD MOTOR COMPANY
Net income [bottom line] / net sales or revenue	Income/(Loss) from continuing operations	$	$	$
15	Return on assets [ROI]	Net income/(loss) attributable to Ford Motor Company	$	$	$
Net income / 2 pt. average total assets
Less: Income/(Loss) attributable to noncontrolling interests	9	-4
16	PE ratio
Net income per share / stock price per share	Net income/(loss) attributable to Ford Motor Company	20,213	6,561	2,717
17	Earnings per share [undiluted]
Stock price per share = Net income for s	NET INCOME/(LOSS) ATTRIBUTABLE TO FORD MOTOR COMPANY
common stock / average fully dilutes common shares	Income/(Loss) from continuing operations	20,213	6,561	2,712
18	RO Equity
Net income / 2 pt average equity	Income/(Loss) from discontinued operations	5
19	Income statement & BS Vertical analysis	Net income/(loss) attributable to Ford Motor Company	20,213	6,561	2,717
For IS Sales OR revenue = 100% divide all by sales or revenue
For BS Assets = 100%, divide all by Assets
20	IS Horizontal analysis
Difference from prior [older] period / prior period
21	BV per common share
Equity / Average # fully diluted common shares
22	Working capital
Current assets - Current liabilities
TimeWarner [TWX]	VERTICAL ANALYSIS: COMMON	CBS [CBS]
WITHOUT NON-RECURRING ITEMS
PERIOD ENDING	9/30/20x1	%	%	9/30/20x1	PERIOD ENDING
Cash And Cash Equivalents	4,355,000	3.2%	2.0%	553,100	Cash And Cash Equivalents
Net Receivables	6,653,000	4.9%	11.4%	3,096,900	Net Receivables
Inventory	2,061,000	1.5%	2.9%	781,500	Inventory
Other Current Assets	1,623,000	1.2%	2.9%	786,300	Other Current Assets
Total Current Assets	14,692,000	10.7%	19.2%	5,217,800	Total Current Assets
Long Term Investments	1,907,000	1.4%	0.0%	0	Long Term Investments
Property Plant and Equipment	23,646,000	17.3%	16.9%	4,583,000	Property Plant and Equipment
Goodwill	42,450,000	31.0%	32.7%	8,897,100	Goodwill
Intangible Assets	52,120,000	38.1%	25.7%	6,980,800	Intangible Assets
Other Assets	1,913,000	1.4%	5.5%	1,495,000	Other Assets
Deferred Long Term Asset Charges	-	-	Deferred Long Term Asset Charges
Total Assets	136,728,000	100.0%	100.0%	27,173,700	Total Assets
Accounts Payable	5,289,000	3.9%	12.5%	3,397,300	Accounts Payable
Short/Current Long Term Debt	125,000	0.1%	0.1%	15,800	Short/Current Long Term Debt
Other Current Liabilities	6,556,000	4.8%	4.6%	1,259,100	Other Current Liabilities
Total Current Liabilities	11,970,000	8.8%	17.2%	4,672,200	Total Current Liabilities
Long Term Debt	37,867,000	27.7%	26.1%	7,084,300	Long Term Debt
Other Liabilities	6,972,000	5.1%	20.9%	5,667,700	Other Liabilities
Deferred Long Term Liability Charges	15,159,000	11.1%	2.1%	573,400	Deferred Long Term Liability Charges
Minority Interest	4,524,000	3.3%	0.0%	2,600	Minority Interest
Total Liabilities	76,492,000	55.9%	66.2%	18,000,200	Total Liabilities
Redeemable Preferred Stock	300,000	0.2%	-	Redeemable Preferred Stock
Common Stock	49,000	0.0%	0.0%	800	Common Stock
Retained Earnings	-86,637,000	-63.4%	-113.1%	-30,734,300	Retained Earnings
Treasury Stock	-25,836,000	-18.9%	-13.6%	-3,693,400	Treasury Stock
Capital Surplus	172,609,000	126.2%	160.6%	43,651,500	Capital Surplus
Other Stockholder Equity	-249,000	-0.2%	-0.2%	-51,100	Other Stockholder Equity
Total Stockholder Equity	59,936,000	43.8%	33.8%	9,173,500	Total Stockholder Equity
Net Tangible Assets	($34,634,000)	-25.3%	-24.7%	($6,704,400)	Net Tangible Assets
PERIOD ENDING	30-Sep-08	30-Sep-08	PERIOD ENDING
Total Revenue	11,706,000	100.0%	100.0%	3,375,700	Total Revenue
Cost of Revenue	6,664,000	56.9%	60.7%	2,050,200	Cost of Revenue
Gross Profit	5,042,000	43.1%	39.3%	1,325,500	Gross Profit
Selling General and Administrative	2,419,000	20.7%	20.2%	680,800	Selling General and Administrative
Others	206,000	1.8%	4.1%	139,700	Others
Total Operating Expenses	2,625,000	22.4%	24.3%	820,500	Total Operating Expenses
Operating Income or Loss	2,417,000	20.6%	15.0%	505,000	Operating Income or Loss
Total Other Income/Expenses Net	104,000	-34,900	Total Other Income/Expenses Net	14,123,100
Earnings Before Interest And Taxes	2,521,000	470,100	Earnings Before Interest And Taxes
Interest Expense	623,000	5.3%	4.0%	134,800	Interest Expense
Income Before Tax	1,898,000	335,300	Income Before Tax
Income Tax Expense	655,000	100,590	Income Tax Expense
Minority Interest [memo]	-96,000	-500	Minority Interest [memo]
Net Income From Continuing Ops	1,243,000	10.6%	7.0%	234,710	Net Income From Continuing Ops
Discontinued Operations	1,000	0.0%	0	Discontinued Operations
Net Income	1,244,000	10.6%	234,710	Net Income
Net Income Applicable To Common Shares	$1,244,000	10.6%	7.0%	$234,710	Net Income Applicable To Common Shares
Horizontal Analysis -- See PPT slides
Horizontal Analysis
Use for Ratios in class	Sample company Hand-out
FORD MOTOR COMPANY AND SUBSIDIARIES	Simplified
CONSOLIDATED STATEMENT OF OPERATIONS
For the Years Ended December 31, 2011, 2010, and 2009
(in millions, except per share amounts)
2011	2010	2009
Revenues
Total revenues	136,264	128,954	116,283
Costs and expenses	Total revenues
CoGS	113,345	104,451	98,866	-
Selling, administrative and other expenses	11,578	11,909	13,029
Operating Income	11,341	12,594	4,388
Interest expense	4,431	6,152	6,790
Financial Services provision for credit and insurance losses	(33)	(216)	1,030
Total costs and expenses	129,321	122,296	119,715
Automotive interest income and other non-operating income/(expense),	825	(362	5,284
Financial Services other income/(loss), net (Note 19)	413	315	552
Equity in net income/(loss) of affiliated companies	500	538	195
Income/(Loss) before income taxes	8,681	7,149	2,599
20,222
Provision for/(Benefit from) income taxes (Note 22)	(11,541)	592	(113)	40%
4,431
Income/(Loss) from continuing operations	20,222	6,557	2,712	2658.6
22,881
Income/(Loss) from discontinued operations	—	—	5
Net income/(loss)	20,222	6,557	2,717
all atributable to common
FORD MOTOR COMPANY AND SUBSIDIARIES
SECTOR BALANCE SHEET
(in millions)
ASSETS	December 31,	December 31,
Automotive & Fin incial services	2011	2010
Cash and cash equivalents	17,148	14,805
Marketable securities (Note 6)	18,819	20,966
Total cash and marketable securities	35,967	35,771	Cash for cash flow
Receivables, less allowances of $126 and $228	77,549	77,257
Inventories (Note 10)	5,901	5,917
Deferred income taxes	1,791	359
Net investment in operating leases (Note 8)	1,356	1,282
Other current assets	1,053	610
Current receivable from Financial Services (Note 1)	878	1,700
Total current assets	124,495	122,896
Equity in net assets of affiliated companies (Note 11)	2,797	2,441
Net property (Note 14)	22,229	23,027
Deferred income taxes	13,932	2,468
Net intangible assets (Note 15)	100	102
Non-current receivable from Financial Services (Note 1)	32	181
Net investment in operating leases (Note 8)	11,482	10,393
Equity in net assets of affiliated companies (Note 11)	139	128
Other assets	5,154	6,240
Total Non-current assets	55,865	44,980
Intersector elimination	(1,112)	(2,083)
Total assets	179,248	165,793
LIABILITIES
Trade payables	14,990	14,818
Other payables	2,734	1,544
Accrued liabilities and deferred revenue (Note 16)	15,003	17,065
Deferred income taxes	40	392
Debt payable within one year (Note 18)	1,943	3,930
Total current liabilities	32,825	34,516
Non-current
Long-term debt (Note 18)	98,656	102,140
Other liabilities (Note 16)	26,910	23,016
Deferred income taxes	255	344
Other liabilities and deferred income	38,558	41,137
Payable to Automotive (Note 1)	910	1,881
Total Non-current	165,289	168,518
Intersector elimination	(1,112)	(2,083)
Total liabilities	164,177	166,435
0	0
EQUITY	Tax rate = 40%
Capital stock (Note 24)	2011	2010
Common Stock, par value $.01 per share (3,745 million shares issued)	37	37	Number of Shares
Class B Stock, par value $.01 per share (71 million shares issued)	1	1	3.8 billion
Capital in excess of par value of stock	20,905	20,803
Retained earnings/(Accumulated deficit)	12,985	(7,038)	Dividends Ex.only
Accumulated other comprehensive income/(loss)	(18,734)	(14,313)	$ 0.25
Treasury stock	(166)	(163)	35,680,000,000.00
Total equity/(deficit) attributable to Ford Motor Company	15,028	(673)	Stock Price/share	9.35
Equity/(Deficit) attributable to noncontrolling interests	43	31	$ 9.50	3,816,042,781
Total equity/(deficit)	15,071	(642)
Total liabilities and equity	179,248	165,793
FORD MOTOR COMPANY AND SUBSIDIARIES	2011
OI %	8.32%	1
NI %	14.8%	2
GP $	22,919	3
GP %	16.8%	4
WC $	91,670	5
Current ratio	3.79	6
Quick Ratio aka Acid test Ratio	3.46	7
A/R Turns	1.76	8
Credit Sales per day	373	9
A/R turnover	207.3	10
Inventory turnover	19.2	11
Days of inventory = average sale period	19.0	12
Aset turnover	0.76	13
Acctg. ROA [aka ROI] %	11.7%	14
Return on Total Assets	13.3%	20
EPS	$5.32	15
Times interest [expense] only	2.56	16
ROE %	280.3%	17
PE Ratio	1.79	18
Dividen payout ratio	4.7%	19
Dividend yieldt ratio	2.6%
Return common equiy	280.3%	21	Have only common in this ex.
BV per share	$3.97	22
Debt to equity ratio	10.9	23
Debt to asset ratio	0.92	24

HCT---&P of &N---&D,&T---&F,&A

Use student Ch.15 File

Ch.12

Excel 1
Segment Income Statement 12/31/2xx1
Digital Watches
Sales	$ 500,000
Less: variable expenses
Variable manufacturing costs	$ 120,000
Variable shipping costs	5,000
Commissions	75,000	200,000
Contribution margin	$ 300,000
Less: Fixed Costs & Expenses	1
General factory overhead	$ 60,000
Salary of line manager	90,000
Depreciation of equipment	50,000
Advertising - direct	100,000
Rent - factory space	70,000
General admin. expenses	30,000	400,000
Net Operating Profit/(Loss)	$ (100,000)
Excel 2	Elimination
+/- benefit
Sales	$ 500,000
Less: variable expenses	(200,000)
Contribution margin	$ (300,000)
1.Can reduce Factory Rental Space = $70,000
Reduced "Fixed" Expense	2.Eliminate Advertising on dropped watch = $100,000
Factory rent	$70,000	3.Line Supervision Eliminated = $90,000
Advertising	$100,000
Line Supervision	$90,000	$260,000
Eliminate Wacth Net effect	($40,000)
Reduced Operating Income
Keep Digital Watch
Excel 2
Comparative approach
With & Without digital Watch Segment
Keep watch
With	Without	+/- benefit
Watch	Watch	Difference
Sales	$500,000	$0
Less: variable expenses
Variable manufacturing costs	$120,000	$0
Variable shipping costs	$5,000	$0
Commissions	$75,000	$0
Total Variable costs & expenses	$200,000	$0
Contribution margin	$300,000	$0	$300,000
Less: Fixed Costs & Expenses
General factory overhead	$60,000	$60,000	$0
Salary of line manager	$90,000	$0	($90,000)
Depreciation of equipment	$50,000	$50,000	$0
Advertising - direct	$100,000	$0	($100,000)
Rent - factory space	$70,000	$0	($70,000)
General admin. expenses	$30,000	$30,000	$0
Total Fixed Costs & Expenses	$400,000	$140,000	($260,000)
Net Operating Profit/(Loss)	$ (100,000)	$ (140,000)	$40,000
Keep Digital Watch
Excel 3
Avoided in Outsourced
Make in House costs	Variable costs
Direct materials	$9.00	$9.00
Direct labor	$5.00	$5.00
Variable overhead	$1.00	$1.00
Depreciation of special equip.	$3.00	No savings if poutsourced
Supervisor's salary	$2.00	$2.00
General factory overhead	$10.00	No savings if poutsourced
Unit product cost	$30.00	$17.00	Avoidable:Saved if outsourced
Excel 4
OUTSOURCE
Resale Value of 4A existing equipment	$0.00
Fixed Costs elimintaed with outsource	$0.00
Outsource cost per unit	$25.00
Outsource cost per unit	$25.00
Avoidable:Saved if outsourced	$17.00	Avoidable Costs
Net added cost per unit if otsourced	($8.00)
Qty	20,000	($160,000)
Net added total costs if Outsourced
In-house	In-house	Outsource
Comparative Total	per unit	Mfg.	$25.00
Direct materials	$9.00	$180,000	500,000
Direct labor	$5.00	$100,000
Variable overhead	$1.00	$20,000
Depreciation of special equip.	$3.00
Supervisor's salary	$2.00	$40,000
General factory overhead	$10.00
$340,000	$500,000
$160,000
Outsouce increased costs

The avoidable costs associated with making part 4A include direct materials, direct labor, variable overhead, and the supervisor’s salary.

Ch.13 NO NO

Cost of Capital	PE on
Additional	Future
$billion	Interst rate	PE now	earnings
Debt	50	8%
Market cap	150	18	14.5
5.6%	6.9%
PRETAX basis	11.1%
Pre tax basis
Cost of capital	10.3%
Hurdle Rate	15%	70% average cost of capital/ 30% negative
Risk factors vary: productivity project risk may be lower than new product risk
Hurdle rate:	10%
If WC now
Equipment	WC	Profit	Net Cash Flow	PV by Year
0	$ (160,000)	$ (100,000)	$ (260,000)	$ (260,000)
1	$ 80,000	$ 80,000	$ 72,727
2	$ 80,000	$ 80,000	$ 66,116
3	$ (30,000)	$ 80,000	$ 50,000	$ 37,566
4	$ 80,000	$ 80,000	$ 54,641
5	$ 5,000	$ 100,000	$ 80,000	$ 185,000	$ 114,870	$ 85,920
$ 85,920	=+E21+NPV(F18,E22:E26)
21%	"=+IRR(E21:E26,0.1)
Year	$	PV$
0	$ (3,170.00)	$ (3,170.00)
1	$ 1,000.00	$ 909.09
2	$ 1,000.00	$ 826.45
3	$ 1,000.00	$ 751.31
Project Life:	4	years	4	$ 1,000.00	$ 683.01
Eqpmnt cost	$ 250,000	($0.12)	$ (0.13)
Maintenace	2	end 2 yrs.
Salvage	$ 10,000
Working Capital	$ 20,000
Cash flow	$ 120,000	per year assumed AT
Hurdle Rate	14%
Cash flow per year	Inflow	Working	Net
Outflow	Annual	Salvage	Capital	Cash Flow
0	$ (250,000)	$ (20,000)	$ (270,000)
1	$ 120,000	$ 120,000
2	$ (90,000)	$ 120,000	$ 30,000
3	$ 120,000	$ 120,000
4	$ 120,000	$ 10,000	$ 20,000	$ 150,000
NPV @ Hurdle Rate	$ 28,156	=+F49+NPV(B45,F50:F53)	$ 150,000
IRR	19%	=+IRR(F17:F21,0.16)
Year	0	$ (104,320)
1	$ 20,000
2	$ 20,000
3	$ 20,000
4	$ 20,000
5	$ 20,000
6	$ 20,000
7	$ 20,000
8	$ 20,000
9	$ 20,000
10	$ 20,000
IRR	14.0%	=+IRR(C41:C51)
Year	0	$ (79,310)
1	$ 22,000
2	$ 22,000
3	$ 22,000
4	$ 22,000
5	$ 22,000
IRR	12.0%	=+IRR(C66:C71)
Discount Rate	10%	OLD	NEW	New - Old
Term/years	10	10	∆ Cash flow	∆ Cash flow
Year	0	-175000	-260000	-$300K+$40K	-85000	$ (85,000)
1	45000	60000	15000	$ 13,636
2	45000	60000	15000	$ 12,397
3	45000	60000	15000	$ 11,270
4	45000	60000	15000	$ 10,245
5	45000	60000	15000	$ 9,314
6	-35000	10000	replace brushes	45000	$ 25,401
7	45000	60000	15000	$ 7,697
8	45000	60000	15000	$ 6,998
9	45000	60000	15000	$ 6,361
10	45000	67000	+$50k + $7k	22000	$ 8,482
IRR	17.6%	17.2%	16.4%
NPV	$56,348	$83,149	$26,802	$26,802	$ 26,802
Profitability Index	32.2%	32.0%	NPV/Initial investment	31.5%
A - B
Rate	14%	A	B	∆	∆ NPV
0	$ (80,000)	$ (60,000)	$ (20,000)	$ (20,000)
1	$ 20,000	$ 16,000	$ 4,000	$ 3,509
2	$ 20,000	$ 16,000	$ 4,000	$ 3,078
3	$ 20,000	$ 16,000	$ 4,000	$ 2,700
4	$ 20,000	$ 16,000	$ 4,000	$ 2,368
5	$ 30,000	$ 24,000	$ 6,000	$ 3,116
IRR	10.9%	13.4%
NPV	($6,145)	($916)	($5,229)	$ (5,229)
Profitability Index	-7.7%	-1.5%	NPV/Initial investment
Old	New	∆ NPV
Rate	10%	Old	New	∆	PV/year	PV/year	PV/year
0	$ (4,500)	$ (12,000)	$ 7,500	$ (4,500)	$ (12,000)	$ 7,500
1	$ (10,000)	$ (6,000)	$ (4,000)	$ (9,091)	$ (5,455)	$ (3,636)
2	$ (10,000)	$ (6,000)	$ (4,000)	$ (8,264)	$ (4,959)	$ (3,306)
3	$ (10,000)	$ (6,000)	$ (4,000)	$ (7,513)	$ (4,508)	$ (3,005)
4	$ (10,000)	$ (6,000)	$ (4,000)	$ (6,830)	$ (4,098)	$ (2,732)
5	$ (9,750)	$ (3,000)	$ (6,750)	$ (6,054)	$ (1,863)	$ (4,191)
NPV	($42,253)	($32,882)	($9,371)	$ (42,253)	$ (32,882)	$ (9,371)
($1,464.78)	-17577.3040858818
($70,309)
PV$	PV$
Year	Tangible	Intangible	Total	PV$	Tangible	Intangible
0	$ (100,000)	$ - 0	$ (100,000)	"=+PMT(0.14,4,E200)	$ (100,000)
1	$ 10,000	24,320.48	$34,320	$ 30,106	$ 8,772	$ 21,334
2	$ 10,000	24,320.48	$ 34,320	$ 26,408	$ 7,695	$ 18,714
3	$ 10,000	24,320.48	$ 34,320	$ 23,165	$ 6,750	$ 16,416
4	$ 10,000	24,320.48	$ 34,320	$ 20,320	$ 5,921	$ 14,400
$ (60,000)	$ 97,282	14%	IRR	$ 100,000	$ 29,137	$ 70,863
$0.00	NPV
End year salvage value = $1040000
$ 1,040,000
20	Years
12%	hurdle rate
$ 10,032,145
Cash flows	∑ Disc.cash flow	Discounted cash flow	∑ discounted cash flow
0	$ (140,000)	$ (140,000)	$ (140,000)	$ (140,000)
1	$ 35,000	$ (105,000)	$ 30,702	$ (109,298)
2	$ 35,000	$ (70,000)	$ 26,931	$ (82,367)
3	$ 35,000	$ (35,000)	$ 23,624	$ (58,743)
4	$ 35,000	$ - 0	$ 20,723	$ (38,020)
5	$ 35,000	$ 35,000	$ 18,178	$ (19,842)
6	$ 35,000	$ 70,000	$ 15,946	$ (3,897)
7	$ 35,000	$ 105,000	$ 13,987	$ 10,091
8	$ 35,000	$ 140,000	$ 12,270	$ 22,360
Discount rate 14%	9	$ 35,000	$ 175,000	$ 10,763	$ 33,123
10	$ 35,000	$ 210,000	$ 9,441	$ 42,564
4	Years	6.28
Cash flows	∑ Disc.cash flow	Discounted cash flow	∑ discounted cash flow
0	$ (4,000)	$ (4,000)	$ (4,000)	$ (140,000)
1	$ 1,000	$ (3,000)	$ 877	$ (3,123)
2	$ - 0	$ (3,000)	$ - 0	$ (3,123)
3	$ 2,000	$ (1,000)	$ 1,350	$ (1,773)
4	$ 1,000	$ - 0	$ 592	$ (1,181)
5	$ 500	$ 500	$ 260	$ (921)
4	Years	N/A
Discount rate 14%

•Decker Company can purchase a new machine at a cost of $104,320 that will save $20,000 per year in cash operating costs. •The machine has a 10-year life.

BS IS data

2007	2006	2007	2006
Assets	Gross Margin %	Assets
Current assets:	EPS	$ 2.42	Current assets:
Cash	$ 30,000	$ 20,000	PE Ratio	$ 8.27	Cash	$ 30,000	$ 20,000
Accounts receivable, net	20,000	17,000	Div PO Ratio	83%	Accounts receivable, net	20,000	17,000
Inventory	12,000	10,000	Div Yield Ratio	Inventory	12,000	10,000
Prepaid expenses	3,000	2,000	ROA	18%	Add back AT Interest	Prepaid expenses	3,000	2,000
2010	2009	2008	2007	2006	2005	2004	2003	Total current assets	65,000	49,000	Return on common EQ	deduct preferred dinvidends	Total current assets	65,000	49,000
Sales	485,500	454,000	422,500	400,000	355,000	320,000	290,000	275,000	Property and equipment:	Book value per common share	common equity only	Property and equipment:
COGS	350,600	326,400	302,200	285,000	250,000	225,000	198,000	190,000	Land	165,000	123,000	Working Capital	Land	165,000	123,000
GM$	137,900	129,600	121,300	115,000	105,000	95,000	82,000	85,000	2009	2008	2007	2006	2005	2004	2003	2002	Buildings and equipment, net	116,390	128,000	Current Ratio	Buildings and equipment, net	116,390	128,000
Sales	156	147	145	129	116	105	105	100	Total property and equipment	281,390	251,000	Acid Test	Total property and equipment	281,390	251,000
% change from prior period	COGS	150	132	118	104	104	100	Total assets	$ 346,390	$ 300,000	AR Turnover	Total assets	$ 346,390	$ 300,000
Sales	6.9%	7.5%	5.6%	12.7%	10.9%	10.3%	5.5%	GM	135	124	112	108	108	100	DSO (avge. Coll. Per)
COGS	7.4%	8.0%	6.0%	14.0%	11.1%	13.6%	4.2%	Inventory turns
GM$	6.4%	6.8%	5.5%	9.5%	10.5%	15.9%	-3.5%	Averages Sales Period	365/Inv.turns
Liabilities & Stockholders Equity	Times Interest Earned	Liabilities & Stockholders Equity
2007	2006	Debt-to-Equity	2007	2006
Accounts payable	$ 39,000	$ 40,000	Accounts payable	$ 39,000	$ 40,000
Notes payable, short-term	3,000	2,000	Notes payable, short-term	3,000	2,000
Total current liabilities	42,000	42,000	Total current liabilities	42,000	42,000
Long-term liabilities:	Long-term liabilities:
Notes payable, long-term	70,000	78,000	Notes payable, long-term	70,000	78,000
Total liabilities	112,000	120,000	Total liabilities	112,000	120,000
Stockholders' equity:	Stockholders' equity:
Common stock, $1 par value	27,400	17,000	Common stock, $1 par value	27,400	17,000
Additional paid-in capital	158,100	113,000	Additional paid-in capital	158,100	113,000
Total paid-in capital	185,500	130,000	Total paid-in capital	185,500	130,000
Retained earnings	48,890	50,000	Retained earnings	48,890	50,000
Total stockholders' equity	234,390	180,000	Total stockholders' equity	234,390	180,000
Total liabilities and stockholders' equity	$ 346,390	$ 300,000	Total liabilities and stockholders' equity	$ 346,390	$ 300,000
2007	2006	2007	2006
Sales	$ 494,000	$ 450,000	Sales	$ 494,000	$ 450,000
Cost of goods sold	140,000	127,000	Cost of goods sold	140,000	127,000
Gross margin	354,000	323,000	Gross margin	354,000	323,000
Operating expenses	270,000	249,000	Operating expenses	270,000	249,000
Net operating income	84,000	74,000	Net operating income	84,000	74,000
Interest expense	7,300	8,000	Interest expense	7,300	8,000
Net income before taxes	76,700	66,000	Net income before taxes	76,700	66,000
Less income taxes (30%)	23,010	19,800	0.30	Less income taxes (30%)	23,010	19,800
Net income	$ 53,690	$ 46,200	Net income	$ 53,690	$ 46,200