Managerial accounting, ABC/ activity based costing

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Ch7ABC.ppt
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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

Copyright © 2015 by McGraw-Hill Education. All rights reserved.

Activity-Based Costing:
A Tool to Aid Decision Making

Chapter 7

Variable = Fxd. & Variable

FAC=GAAP=Financial Reptg. = Product & Period

ABC = Traceable Variable & ABC allocated Fxd. To Cost Object & Unallocated Fxd.

Ch.7 PPT Additions 3/1/2017

7-*

Activity–Based Costing (ABC)

ABC is designed to provide managers with cost information for strategic and other decisions that potentially affect capacity, and therefore, affect “fixed”
as well as variable costs.

Chapter 7

ABC is a

good supplement to our traditional cost system

I agree!

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Slide *

Activity–Based Costing (ABC)

ABC is designed to provide managers with cost information for strategic and other decisions that potentially affect capacity and therefore affect “fixed”
as well as variable costs.

A cost object needs to be determined

Can be Products, Development project, Marketing project, Construction, Customer, Segment Orders….

*

ABC is a costing method that is designed to provide managers with cost information for strategic and other decisions that potentially affect capacity and therefore “fixed” as well as variable costs. It is ordinarily used as a supplement to, rather than as a replacement for, the company’s usual costing system.

 

Ch.7 PPT Additions 3/1/2017

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Activity–Based Costing (ABC)

McGraw-Hill/Irwin

Slide *

How Costs are Treated Under
Activity–Based Costing-1

ABC differs from traditional cost accounting in three ways.

ABC assigns both [product & period]

types of costs to products or to activities

ABC uses more cost pools.

*

ABC differs from traditional cost accounting in three ways. The first is that nonmanufacturing as well as manufacturing costs may be assigned to products, but only on a cause-and-effect basis. For example, ABC systems can assign sales commissions, shipping costs, and warranty repair costs to specific products.

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How Costs are Treated using
Activity–Based Costing-2

ABC differs from traditional cost accounting in three ways.

Manufacturing
costs

Nonmanufacturing
operating expenses

ABC assigns both [product & period]

types of costs to products.

Product costs can go to activities

Traditional
product costing

ABC
product costing

*

ABC differs from traditional cost accounting in three ways. The first is that nonmanufacturing as well as manufacturing costs may be assigned to products, but only on a cause-and-effect basis. For example, ABC systems can assign sales commissions, shipping costs, and warranty repair costs to specific products.

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Slide *

How Costs are Treated Under
Activity–Based Costing

  • ABC does not assign all manufacturing costs to products.

Manufacturing
costs

Nonmanufacturing
costs

Traditional
product costing

ABC
product costing

All

Most, but
not all

Some

ABC differs from traditional cost accounting in three ways.

*

The second major difference between ABC and traditional cost accounting is that some manufacturing costs may be excluded from product costs. This is because ABC only assigns a cost to a product if decisions concerning that product will cause changes in the cost. ABC excludes two types of costs from product costs:

  • Organization-sustaining costs (which will be formally defined later); and
  • The costs of unused or idle capacity.

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How Costs are Treated Under
Activity–Based Costing

Plantwide

Overhead

Rate

Cost Sys

Departmental

Overhead

Rates

/some Cost sys.

Activity–Based

Costing Rate

NOT in Cost Sys

Number of cost pools

Level of complexity

ABC uses more cost pools. In addition to product costs to products, some products costs go to activities

ABC differs from traditional cost accounting in three ways.

*

The third major difference between ABC and traditional cost accounting is that numerous overhead cost pools are used, each of which is allocated to products and other cost objects using its own unique measure of activity. ABC cost pools are created to correspond to the activities performed in an organization that cause the consumption of overhead resources. Therefore, the total number of ABC cost pools will definitely exceed one (as in the plantwide approach) and it is likely to exceed the number of departments within a company (as in the departmental approach), since more than one activity is often performed within each department.

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How Costs are Treated Under
Activity–Based Costing

ABC uses more cost pools. Identify activity which is important to enterprise; these plus product pools become activities. Each activity has an activity measure [quantity]

Each ABC cost pool has its
own unique measure of activity.

ABC differs from traditional cost accounting in three ways.

Traditional cost systems usually rely
on volume measures such as direct labor
hours and/or machine hours to allocate
all overhead costs to products.

*

Each ABC cost pool has its own unique measure of activity. On the contrary, traditional cost systems usually rely on direct labor hours and/or machine hours to allocate all overhead costs to products.

Direct labor and machine hours work correctly when changes in the quantity of the base are correlated with changes in the overhead costs being assigned using the base.

Relying exclusively on these bases to assign overhead costs to products has come under increased scrutiny since, on an economy-wide basis, direct labor and overhead costs have been moving in opposite directions and the variety of products produced by companies has increased.

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Examples of Activities for Management Focus rather than Product / Period

R&D Projects

Capital

Projects

Employee

Development

Market

Expansion

Products

Customers

Segments

McGraw-Hill/Irwin

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Activity

An event that causes [driver] the consumption of overhead resources.

Activity Cost Pool

A “cost bucket” in which costs related to a single activity measure are accumulated.

How Costs are Treated Under
Activity–Based Costing

*

Part I.

An activity is any event that causes the consumption of overhead resources.

Part II.

An activity cost pool is a “bucket” in which costs are accumulated that relate to a single activity measure in an ABC system.

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How Costs are Treated Under
Activity–Based Costing

What are the activities?

Allocate cost/expenses to the activity pool. The Numerator

Determine & quantify the activity measure,

The Denominator

Compute activity rate per activity measure unit

The Quotient – the RATE

APPLIED VIA RATE

Activity Measure

An allocation base
in an activity-based
costing system.

The term cost driver is also used to refer to an activity measure.

*

An activity measure is an allocation base in an activity-based costing system. The term cost driver is also used to refer to an activity measure. The two most common types of activity measures are shown on the next slide.

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Two common types of activity measures:

How Costs are Treated Under
Activity–Based Costing

Simple count
of the number of
times an activity
occurs.

Transaction
driver

A measure
of the amount
of time needed
for an activity.

Duration
driver

*

Two types of activity measures include:

  • Transaction drivers – simple counts of the number of times that an activity occurs such as the number of bills sent out to customers.
  • Duration drivers — measures of the amount of time needed to perform an activity such as the time spent preparing individual bills for customers.

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How Costs are Treated Under
Activity–Based Costing

Traditional cost systems usually rely on volume
measures of production such as direct labor hours and/or machine hours to allocate all manufacturing overhead costs to products.

ABC defines
five

[including Product level]

levels of activity
that largely do not relate
to the volume of units
produced

[or sold for variable period costs].

*

Traditional cost systems rely exclusively on allocation bases that are driven by the volume of production. ABC defines five levels of activity that largely do not relate to the volume of units produced.

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How Costs are Treated
Under Activity–Based
Costing

Material, variable conversion cost

Manufacturing
companies typically combine
their activities into five
classifications.

Unit-Level

Activity [power to make]

Batch-if batches exist-Level

Activity [ex. Batch of Tylenol made]

Product-Level

Activity

Customer-Level

Activity

Organization-
Sustaining

Activity [CEO/CFO,IT, Legal, R&D, Maint….

*

In an activity-based cost system, companies typically combine their activities into the following five classifications:

  • Unit-level activities are performed each time a unit is produced. For example, providing power to run processing equipment would be a unit-level activity.
  • Batch-level activities are performed each time a batch is handled or processed, regardless of how many units are in the batch. For example, setting up equipment and shipping customer orders are batch-level activities.
  • Product-level activities relate to specific products and must be carried out regardless of how many batches are run or units are produced or sold. For example, designing or advertising a product would be product-level activities.
  • Customer-level activities relate to specific customers and are not tied to any specific product. For example, sales calls and catalog mailings would be customer-level activities.
  • Organization-sustaining activities are carried out regardless of which customers are served, which products are produced, how many batches are run, or how many units are made. For example, heating a factory and cleaning executive offices are organization-sustaining activities.

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ABC defines five levels of activity that largely do not relate to the volume of units produced for manufacturing OH. 

1.Unit-level activities are performed each time a unit is produced.
For example, providing power to run processing equipment would be a unit-level activity.
2.Batch-level activities are performed each time a batch is handled or processed, regardless of how many units are in the batch. For example, setting up equipment and shipping customer orders are batch-level activities.
3.Product-level activities relate to specific products and must be carried out regardless of how many batches are run or units are produced or sold. For example, designing or advertising a product would be product-level activities. Across a product or product line, more than one part number of FG.
4.Customer-level activities relate to specific customers and are not tied to any specific product. For example, sales calls and catalog mailings would be customer-level activities.
5.Organization-sustaining activities are carried out regardless of which customers are served, which products are produced, how many batches are run, or how many units are made. [All Other]
For example, heating a factory and cleaning executive offices are organization-sustaining activities, support services for organization

McGraw-Hill/Irwin

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Characteristics of Successful ABC Implementations

Strong top
management support

Cross-functional
involvement

Reward, bonus … using ABC measurement

*

There should be strong top management support. Without leadership from top management, some managers may not be motivated to embrace the need to change.

Top managers should ensure that ABC data are linked to how people are evaluated and rewarded. If employees continue to be evaluated and rewarded using traditional (non-ABC) cost data, they will quickly get the message that ABC is not important and they will abandon it.

A cross-functional team should be created to design and implement the ABC system. Cross-functional employees possess intimate knowledge of operations that is necessary for designing an effective ABC system. Tapping the knowledge of cross-functional managers lessens their resistance to ABC because they feel included in the implementation process

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Baxter Battery – An ABC Example

Manufacturing overhead is allocated to products using
a single plantwide overhead rate based on machine hours.

Baxter Battery Company produces two automobile battery lines — a standard battery called the SureStart and a deluxe, higher quality battery called the LongLife. Both batteries are sold through automobile parts retail stores. No design options are available for the SureStart, but Baxter produces the LongLife with different battery casing designs and battery handle locations to customize the appearance for the auto parts stores. For example, the battery casing can be produced in different colors with different brand names to suit the customers. The company has reported its first loss ever of $2,000,000 as shown on the income statement.

Ch.7 PPT Additions 3/1/2017

Sheet1

Baxter Battery Company
Income Statement
Year Ended December 31, 2xx2
Sales $ 50,000,000
Cost of goods sold
Direct materials $ 15,000,000
Direct labor 12,000,000
Manufacturing overhead 14,000,000 41,000,000
Gross margin 9,000,000
Selling and administrative expenses
Shipping expenses 3,000,000
Marketing expenses 2,000,000
General administrative expenses 6,000,000 11,000,000
Net operating income operating loss $ (2,000,000)

Sheet2

Sheet3

McGraw-Hill/Irwin

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Define:

Activities,

Activity Cost Pools,

Activity Measures [business study to determine # of units]-Qty.

Assign Overhead Costs to Activity Cost Pools $s

Direct

Allocable

Allocation basis from expense by function or natural expense to pool

Sum

Calculate Activity Rates: Pools cost / Activity measure

Apply Rate to a Cost Object [Customer, Product, Order …]

Report, Analyze, Act

ABC process overview

McGraw-Hill/Irwin

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Activity Measure

The ABC team determined that Baxter Battery will have these total activities for each activity cost pool [4 pools].

10,000 customer orders,

4,000 design changes,

800,000 machine-hours,

2,000 customers served.

*

The Baxter Battery ABC team determined that the company has the following activity for the four cost pools, 10,000 customer orders, 4,000 designs changes, 800,000 machine-hours, 2,000 customers served. This information enabled the team to compute ABC rates for each activity by dividing the total cost in each activity cost pool by the respective quantity of the activity measure.

Ch.7 PPT Additions 3/1/2017

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 Define Activities, Activity Cost Pools,
and Activity Measures

At Baxter Battery, the ABC team, selected the following
activity cost pools and activity measures:

4

*

The first step in implementing ABC is to define activities, activity cost pools, and activity measures. The activities are often identified and defined by interviewing the employees that work in the respective overhead departments. The lengthy list of activities that emerges from this process is usually reduced to a handful by combining similar activities.

Baxter Battery selected the following five activity cost pools and corresponding activity measures:

Activity Cost Pool Activity Measure

Customer orders Number of customer orders

Design changes Number of design changes

Order size Machine-hours

Customer relations Number of active customers

Other Not applicable

Ch.7 PPT Additions 3/1/2017

Sheet1

Activity Cost Pools at Baxter Battery
Activity Cost Pool Activity Measure
Customer orders Number of customer orders
Design changes Number of design changes
Order size Machine-hours
Customer relations Number of active customers
Other Not applicable

Sheet2

Sheet3

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Customer Orders - assigned all costs of resources that are consumed by taking and processing customer orders.

Design Changes - assigned all costs of resources consumed by customer requested design changes.

Order Size - assigned all costs of resources consumed as a consequence of the number of units produced/sold converted into machine hours

Customer Relations – assigned all costs associated with maintaining relations with customers.

Other – assigned all organization-sustaining costs and unused capacity costs – unallocated

 Define Activities, Activity Cost Pools,
and Activity Measures

*

At Baxter Battery, the definition for each of the activity cost pools is:

  • Customer Orders - assigned all costs of resources that are consumed by taking and processing customer orders.
  • Design changes - assigned all costs of resources consumed by customer requested design changes.
  • Order Size - assigned all costs of resources consumed as a consequence of the number of units produced.
  • Customer Relations – assigned all costs associated with maintaining relations with customers.
  • Other – assigned all organization-sustaining costs and unused capacity costs

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Slide *

Direct materials, direct labor, and shipping are excluded
because Baxter Battery’s existing cost system can directly
trace these costs to products or customer orders through products.

 Assign Overhead Costs to Activity Cost
Pools

*

Three costs included in Baxter Battery’s income statement—direct materials, direct labor, and shipping—are excluded from this slide because Baxter Battery’s existing cost system can directly trace these costs to products or customer orders.

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 Calculate Activity Rates

The ABC team determines that Baxter Battery will have these total activities [QTY] for each activity cost pool . . .

10,000 customer orders,

4,000 design changes,

800,000 machine-hours,

[machine hrs. proxy for product volume]

2,000 customers served.

Now the team can compute the individual activity rates by dividing the total cost for each activity by the total activity levels.

*

The Baxter Battery ABC team determined that the company has the following activity for the four cost pools, 10,000 customer orders, 4,000 designs changes, 800,000 machine-hours, 2,000 customers served. This information enabled the team to compute ABC rates for each activity by dividing the total cost in each activity cost pool by the respective quantity of the activity measure.

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Slide *

Direct

Materials

Direct

Labor

Shipping

Costs

Overhead Costs

Period & Product

Cost Objects:

Products, Customer Orders, Customers

Activity–Based Costing at Baxter Battery

ABC

Traced

Traced

Traced

*

Before proceeding, let’s get a visual perspective of the Baxter Battery ABC system. The direct materials, direct labor and shipping costs are directly traceable to products or customer orders.

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Activity–Based Costing at Baxter Battery

Direct

Materials

Direct

Labor

Shipping

Costs

Cost Objects:

Products, Customer Orders, Customers

Customer
Orders

Order
Size

Customer

Relations

Other

Overhead Costs

First-Stage Allocation

Second-Stage Allocations

$/Order

$/Change

$/MH

$/Customer

Unallocated

Design

Changes

Often questionnaire or judgment used; a weakness

←←Rates

*

Then, activity measures were identified, activity levels were determined, and activity rates were computed for each activity as shown earlier. These rates will be used in the next step to assign overhead costs to cost objects.

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Slide *

Assign costs to cost pools using a first-stage allocation.

Establish Rates

EXCEL A

HCT

Learning objective number 2 is to assign costs to cost pools using a first-stage allocation.

*

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Assign costs to a cost object [such as a customer] using a second-stage allocation.

Learning objective number 4 is to assign costs to a cost object using a second-stage allocation.

*

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Baxter Battery Information

Product A: SureStart

  • Requires no new design resources.
  • 800,000 batteries ordered with 4,000 separate orders.
  • Each SureStart requires 36 minutes of machine
    time for a total of 480,000 machine-hours. [480K x $6.50 = $3120K]

Product B: LongLife

  • Requires new design resources.
  • 400,000 batteries ordered with 6,000 separate orders.
  • 4,000 custom designs prepared.
  • Each LongLife requires 48 minutes of machine
    time for a total of 320,000 machine-hours.

[320K x $6.50 = $2080K]

 Assigning Overhead to Products

*

The data needed to assign overhead costs to Baxter Battery’s two products—SureStart and LongLife—are as shown. There were 4,000 separate customer orders placed for 800,000 SureStarts and 6,000 customer orders were placed for 400,000 LongLifes. All 4,000 design changes related to the LongLife batteries. The SureStart battery consumed 480,000 machine hours, and the LongLife consumed 320,000 machine-hours.


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Slide *

Use activity-based costing to compute product and customer margins.

$22,000,000

through ABC

$6,160,000

to Sustaining

$15,840, 000

To Activities

$3,080,000 to customer relations

[Not Products]

So

$12,760,000 to products

$30,000,000

Through cost system to Products

Learning objective number 5 is to use activity-based costing to compute product and customer margins.

*

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Slide *

 Assigning ABC Pool Overhead to Products

Sum all polls =

$15840K

*

The overhead cost assignments to SureStarts and LongLifes are as shown. Notice that the total overhead costs assigned to SureStarts and LongLifes are $4,928,000 and $7,832,000, respectively, for a total of $12,760,000 assigned to the two products.

The total overhead costs assigned to products ($12,760,000) plus the total overhead costs not assigned to products ($9,240,000) equal the total overhead cost of $22,000,000 from earlier slides. The overhead not assigned to products consists of customer relations ($3,080,000) and other ($6,160,000).

Ch.7 PPT Additions 3/1/2017

Sheet1

Overhead Cost for the 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
Total $ 4,928,000

Sheet2

Sheet3

Sheet1

Overhead Cost for the LongLife
(a) (b) (a) × (b)
Activity Cost Pools Activity Rate Activity ABC Cost
Customer orders $ 452.00 6,000 $ 2,712,000
Design changes 760.00 4,000 3,040,000
Order size {object is Product} 6.50 320,000 2,080,000
Total $ 7,832,000

Sheet2

Sheet3

McGraw-Hill/Irwin

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 Prepare Management Reports

Product Margin Calculations

The first step in computing product margins is to
gather each product’s sales and direct cost data.

$30,000,000

Through cost system to Products

Traced through Cost System to Products

*

One of the most common management reports prepared with ABC data is product profitability (product margin) reports. The first step in computing product margins is to gather each product’s sales and direct cost data which are assumed to be as shown.

Ch.7 PPT Additions 3/1/2017

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

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Direct Costs Summary

After Direct costs BUT before variable Selling Expense

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

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 Regression
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)

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

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)

1

3

1

1

4

2

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

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 $ 719,500 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 $ 719,500 $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 + ac opera * ah , ai 37.5% 62.5% 88.9% 11.1%
ak Assembly 375,000 12,889 + ac mach * ah , ai $ 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
Operating Income [above] $20,000 / Op. Inc. $20,000
Leverage Ratio 5.00 CM$ / Operating Income 1% ∆ CM Ratio 5.00
= 5% ∆ Op.Income
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
j Variable costs & Expense $300 $ 150,000
k Contribution margin $200 $ 100,000 +$200/$500=40% CM% Contrib ratio $s
l Fixed expenses $80,000 $100,000/$250,000=40%
m Net income [Operating Income] $20,000
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

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
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
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.
per unit $s %
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 %
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---Ch.5 CVP---&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, &F

1

2

3

1

3

2

1

2

3

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
General Administrative Department 9 expense categories to be allocated
Administrative wages and salaries 4,000,000
Office equipment depreciation 900,000
Administrative building lease 1,100,000 6,000,000
Marketing Department
Marketing wages and salaries 1,500,000
Selling expenses 500,000 2,000,000
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* 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
Selling expenses 100,000 - 0 - 0 350,000 50,000 500,000 2,000,000 unassigned ABC
Total 4,520,000 3,040,000 5,200,000 3,080,000 6,160,000 22,000,000
Given data è
Activity Level [3] Money is in the pool 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 Hrs. Units Extd. Hrs. ABC rate $ 6.50
$Amt. per Activity unit [3] $ 452.00 $ 760.00 $ 6.50 $ 1,540.00 N/A -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
Not traced to ABC object (6,160,000)
To ABC Objects 15,840,000 15,840,000 30.5% in ABC pools
------Product Lines------
Pools $ in Pool Activity Measure Qty of Act. Measure Rate Sure Starts [A] Long Lifes [B] Total
Customer Orders 4,520,000 Customer Orders 10,000 $ 452.00 4,000 6,000 10,000
Design changes 3,040,000 Design changes 4,000 $ 760.00 - 0 4,000 4,000
Order Size 5,200,000 Machine Hours 800,000 $ 6.50 480,000 320,000 800,000
Customer Relations 3,080,000 Number of Customers 2,000 $ 1,540.00 Measured Actual Measured Actual From data set given
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 to 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 DirectCosts through cost system
Contrib % 42% 36% 40% 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 %%% ******** 27% -6% 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 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
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 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.
Selling and administrative expenses 11,000,000 all non-manufacturing expenses
Operating Income [Loss] (2,000,000)
Variable/Contribution Sure Starts [A] Long Lifes [B] Total From:
Sales 31,300,000 18,700,000 50,000,000
No change in inventory
Variable costs & expenses
Direct material 9,000,000 6,000,000 15,000,000 Cost system Same as GAAP/ABC
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 $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 $1,700 +
Variable Sell/Admin 8% of sales 2,504,000 1,496,000 4,000,000 8% is a Given % $15,900 =
Total Variable Costs & expenses 24,284,000 16,016,000 40,300,000
Contribution Margin 7,016,000 2,684,000 9,700,000
22.4% 14.4% 19.4% 22,000,000 Total overhead costs for allocation
Fixed (6,300,000) Manufacturing: 45% variable
Manufacturing 7,700,000 (4,000,000) Variable Sell/Admin 8% of sales
General administrative expenses 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 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 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 76.7% 23.3% 100.0%
Variable/Contribution 72.3% 27.7% 100.0%
back 42

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

Given data

K

Ch.8

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
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
Budgeted Sales 200,000 500,000 300,000 250,000 150,000 320,000
Period ending cash CASH 90,000 30% uncollected
Collections 75,000 25%/30% of end Q1 A/R will be collected
70% 175,000 105,000 224,000
25% 62,500 37,500
Sum 250,000 167,500 261,500 679,000 679,000
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 28,000 21,400 39,200 44,400
Less Beginning (4,000) (3,000) (6,400) (7,200)
= Unit Production 24,000 18,400 32,800 37,200
Cost/Lb Cost/Unit
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
Required for Production - 0 120,000 92,000 164,000 186,000
$s Into FG for Production $ 48,000 $ 36,800 $ 65,600 $ 150,400 Qtr. Total
Budget Ending Inventory 13,000 9,200 16,400 18,600
Sales + Ending 129,200 108,400 182,600
Less Beginning (13,000) (9,200) (16,400)
Qty. Purchase of Raw material 116,200 99,200 166,200 Material budget
$s. Purchase of Raw material $ 46,480 $ 39,680 $ 66,480 Material budget
CASH Ending A/P $ 12,000
Cr. To A/P = purchases $ 46,480 $ 39,680 $ 66,480
Pay 50% current $ 23,240 $ 19,840 $ 33,240
Pay prior $ 12,000 $ 23,240 $ 19,840 Cash budget
Total paid $ 35,240 $ 43,080 $ 53,080 Cash budget $ 131,400 Qtr. Total
Ending A/P [Beginning + Additions - payments] $ 23,240 $ 19,840 $ 33,240
Guaranteed Hours Rate
Payment for quarter 1500 $ 10.00
Required Hrs. per unit 0.05
DL$s. per unit $ 0.50 700
Apr May Jun Qtr sum
= Unit Production 24,000 18,400 32,800 75,200
HRs of Prodctn. at Required per unit of 0.05 1,200 920 1,640 3,760
DL Cost of production at 10 per Hr $ 12,000 $ 9,200 $ 16,400 37,600
unfavorable variance of $ 7,400
Hrs paid 1,500 1,500 1,500 4,500 740 Hours
$s paid $ 15,000 $ 15,000 $ 15,000 45,000
Productivity at budget earned HRs/paid HRs 80% 61% 109%
Variable OH $s per HR $ 20.00 rate is per DL hr.
Required Hrs. per unit 0.05 Hrs. per unit
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
= 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 1,200 920 1,640 3,760 41.67 54.35 30.49
VOH Cost of production at $20 per DL Hr $ 24,000 $ 18,400 $ 32,800
Fixed manufacturing OH per period $50,000 $50,000 $50,000 $ 150,000
Total MOH per Month $ 74,000 $ 68,400 $ 82,800 $ 225,200
Fxd. Mfg. OH rate/hr. $ 41.67 $ 54.35 $ 30.49 59.89
Fxd. Mfg. OH unit $ 2.08 $ 2.72 $ 1.52 $ 2.99 0.05 hrs. per unit
Fxd. Mfg. OH rate/hr. Quarter average ò Apr May Jun
Budgeted MOH rate per period 61.67 74.35 50.49 59.89 $ 41.67 $ 54.35 $ 30.49 Fxd rate
$ 20.00 $ 20.00 $ 20.00 V. Rate
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 Variable Fixed
0.40 $5.00 Materials $ 2.00
0.05 $10.00 DL $ 0.50 this excludes the unfav. DL variance of $ 7,400
0.05 $20.00 V Mfg. OH $ 1.00 $ 0.098 per unit
0.05 $59.89 F MFG. OH 2.99
Sum $ 3.50 $ 2.99
$ 6.49 average per unit for Qtr
CoGS chart Qty
given
Excel C Beginning Beginning $ 71,500 13,000 Excel B
+ Input addtions
Excel C Materials $ 150,400
Excel D Labor $ 45,000
Excel E Overhead $ 225,200 75,200 Excel B $50,000
Total $ 420,600
Average per FG unit 6.49 Excel E
- Ending (46,762) 7,200 Excel B
= CoGS $ 445,338
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
Non cash portion (10,000) (10,000) (10,000) (30,000)
Cash Period Expense 72,500 67,500 76,000 216,000
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 avaialble $ 719,000
Cash disbursements:
Materials $ 131,400 Excel C
Direct labor $ 45,000 Excel D
Mfg. Overhead $ 165,200 Excel E required without interest $ 36,400
Selling/Admin. $ 216,000 Excel G Borrowing $ 19,000 Average borrowing given
Equipment Purchased $ 125,000 Given # months 3
Interest $ 285 6% interest $ 285 6%
Total $ 682,885
Management judged Cash balance adequate to operate did not pay down debt
Cash Balance $ 36,115 Could reduce Cash or change borrowing
Debt on BS $ 55,115 Excel K Below Can balance BS with CASH or With Borrowing
Royal Company
Statement of Income
QE: 6/30 GAAP, FAC
Sales 720,000 100.0% Excel A
Less: Cost of Goods Sold $ 445,338 61.9% Excel F
Gross Margin $ 274,662 38.1%
Selling & Admin, Expense 246,000 34.2% Excel G
Operating Income 28,662 4.0%
Interest Expense $ 285 0.0%
Income before taxes $ 28,947 4.0%
Royal Company
Month ending 6/30
Balance Sheet
Assets
Cash $ 36,115 Excel H
Accounts receivable 96,000 Excel A
Inventory 46,762 Excel F
Land 50,000 Given
Equipment 175,000 Given
Statement of Retained Earnings Total assets 403,877 403,877
Beginning $ 86,575
less: Dividends 0 Liabilities & Stockholders' Equity
Plus: Income $ 28,947 Accounts Payable $ 33,240 Excel C
Ending Retained Earnings $ 115,522 Long term debt $ 55,115 Excel H
Common stock $ 200,000 Given
Retained Earnings $ 115,522 çç right
Total Liabilities & Stockholders' Equity $ 403,877
Cash $ 36,115 Accounts Payable $ 33,240
Accounts receivable $ 96,000 Common stock $ 200,000
Inventory $ 46,762 Retained Earnings $ 115,522
Land $ 50,000 $ 348,762
Equipment $ 175,000 Debt to balance $ 55,115
$ 403,877 $ 403,877

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

Excel A Sales Budget

Excel C Materials

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

Ch.9 Flex A

STATIC Budget 1
For the Period Ended June 30
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
Gasoline and supplies 4,500 $ 9 units sold $ 4,500 $ - 0 500 $9
Equipment maintenance 1,500 $ 3 units sold $ 1,500 $ - 0 500 $3
Office and shop utilities 1,000 $ 1,000 $ - 0
Office and shop rent 2,000 $ 2,000 $ - 0
Equipment Depreciation 2,500 $ 2,500 $ - 0
Insurance 1,000 $ 1,000
Total expenses 32,500
Net operating income $ 5,000
ACTUAL 1
For the Period Ended June 30
Actual
Results
Number of units Driver 550 Actual
$ 78.18
Revenue $ 43,000 SP Each
Expenses:
Wages and salaries $ 23,500 given from Financials
Gasoline and supplies 5,100 given from Financials
Equipment maintenance 1,300 given from Financials
Office and shop utilities 950 given from Financials
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 Characteristics
Fixed Variable Each Basis
Revenue $ 37,500 $ 41,250 $0 $75 units sold 3750
Expenses:
Wages and salaries $ 20,000 $ 21,500 $5,000 $30 units sold 1500
Gasoline and supplies 4,500 4,950 $9 units sold 450
Equipment maintenance 1,500 1,650 $3 units sold 150
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
No variable Equipment Depreciation 2,500 2,500 $2,500 $0 550
No variable Insurance 1,000 1,000 $1,000 $0 $ 21,500 $ 5,000 $ 16,500 flexed
Total expenses 32,500 34,600 y a bX
Net operating income $ 5,000 $ 6,650 $ 1,650 ←←Δ due to Volume =
STATIC v. FLEX Budget
For the Period Ended June 30 3
Single Driver = Units Sold Fav/(Unfav)
Planning Flexible Activity
Budget Budget or Volume
Variance Revenue
Number of units (Q) 500 550 50 Fav Variance
Revenue $ 37,500 $ 41,250 $ 3,750 Fav Driver
Expenses: Variable each Qty. bX a
Wages and salaries $ 20,000 $ 21,500 $ (1,500) Unfav $ 30 550 16,500 $ 5,000
Gasoline and supplies 4,500 4,950 $ (450) Unfav $ 9 550 4,950 $ - 0
Equipment maintenance 1,500 1,650 $ (150) Unfav $ 3 550 1,650 $ - 0
Office and shop utilities 1,000 1,000 $ - 0 --
Office and shop rent 2,000 2,000 $ - 0 --
Equipment Depreciation 2,500 2,500 $ - 0 --
Insurance 1,000 1,000 $ - 0 --
Total expenses 32,500 34,600 (2,100) Unfav
Net operating income $ 5,000 $ 6,650 $ 1,650 Fav
Single Driver = Units Sold
STATIC v. FLEX Budget 3
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
Expenses: Reminder Y = a + bX Fixed Variable Each
Wages and salaries $ 20,000 $ 21,500 $ (1,500) -7.5% U $ 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
Revenue 10.0% Up = Fav 3
Net operating income 33.0% Up = Fav
PPT 4 Single Driver = Units Sold
Revenue Variance Added Excel 4
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
Budget or Volume Budget Revenue Actual Variance All Controllable
Variance Variance
Number of units (Q) 500 550 550
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 //
Static 37,500 Units $s Each each Volume Spending
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
Activity (1,500) 50 30 $ 5,000
Price/other (2,000)
Actual 23,500 4
PPT
ClassCo Manufacturing
STATIC Budget Y=a+bX Static 5a
Multiple Drivers Budget
Sales Qty. 3,000 Hours 12,000 Driver 4.00 Hrs.Each
Sell each $ 340 Units 3,000 Driver
Sales 1,020,000 STATIC Budget
TWO Variable 67% 33%
Expense Driver Each Fixed Fixed Variable % Fxd.
100% V Direct labor DL Hours $ 14.00 0 168,000 0 168,000 0%
100% V Material & Supplies Units $ 22.00 0 66,000 0 66,000 0%
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%
Y=a+bX Testing Units $ 4.00 80,000 92,000 = $80,000 + $4 X 3000 units 80,000 12,000 87%
Y=a+bX 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
FLEX Budget 5b Var.Units 3,300
Actual Actual per unit $ 3.00
Hours 14,000 9,900
Actual UnitsSold 3,345 Units 3,300 made Fxd. 110,000
Flex'd 119,900
Sales $ 1,137,300
TWO Variable 64% 36%
Expense Driver Each Fixed Fixed Variable Variable
Direct labor DL Hours $ 14.00 0 196,000 Flexible budget 0 196,000 14,000 $ 14.00
Material & Supplies Units $ 22.00 0 72,600 Flexible budget 0 72,600 14,000 $ 22.00
Line Supervision Units $ 3.00 110,000 119,900 Flexible budget 110,000 9,900 3,300 $ 3.00
Deprecation N/A $ - 0 250,000 250,000 Flexible budget 250,000 0 N/A N/A
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
Admin. N/A $ - 0 120,000 120,000 Flexible budget 120,000 0 N/A N/A
Total: 580,000 906,700 580,000 326,700
Sum F/V 906,700
Operating Income 230,600
ClassCo Manufacturing
Actual Actual
Units 3345 Hours 14,000
Units 3,300 made
Sales 1,145,300
Expense
Direct labor 204,000
Material & Supplies 69,000
Line Supervision 131,000
Deprecation 248,500
Rework & repair 47,000
Testing 95,000
Admin. 128,000
5c Total 922,500
Operating Income 222,800
STATIC v. FLEX Budget Non-Con. Volume 5d Controllable Performance
For the Period Ended June 30 F/(Unfav) from above F/(Unfav) Budget
Multiple Drivers Planning Activity Flexible Spending to Actual
Budget or Volume Budget Actual Variance
Variance Variance
DL Hrs 12,000 14,000 14,000
Units 3,000 3,300 3,300
Sales 1,020,000 117,300 1,137,300 8,000 1,145,300 125,300 0
Expense
Direct labor 168,000 (28,000) 196,000 (8,000) 204,000 (36,000) 0
Material & Supplies 66,000 (6,600) 72,600 3,600 69,000 (3,000) 0
Line Supervision 119,000 (900) 119,900 (11,100) 131,000 (12,000) 0
Deprecation 250,000 0 250,000 1,500 248,500 1,500 0
Rework & repair 50,000 (5,000) 55,000 8,000 47,000 3,000 0
Testing 92,000 (1,200) 93,200 (1,800) 95,000 (3,000) 0
Admin. 120,000 0 120,000 (8,000) 128,000 (8,000) 0
Total 865,000 (41,700) 906,700 (15,800) 922,500 (57,500) 0
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

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 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 42471 60060
a77 Metal frame unit 1 0.50% 1.005 1.005 $ 11.00 $ 11.06 $ 11.055 45191 14600
l22 Laminate cover sq.' 10 2% 10.200 10.200 $ 0.75 $ 7.65 $ 7.650 1212 3500
s44 side trim linear ft. 9.2 4% 9.568 9.568 $ 0.22 $ 2.10 $ 2.105 2952 6700
t51 top cover sq.' 10 1% 10.100 10.100 $ 4.25 $ 42.93 $ 42.925 4634 84860
LL2 Leg assemblies unit 4 0 4 909
M98 Metal tubing linear ft. 3 6% 3.180 12.720 $ 1.89 $ 6.01 $ 24.041 3024
FF8 end tabs unit 1 0.40% 1.004 4.016 $ 0.04 $ 0.04 $ 0.161 4403
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 Labor
For simplicity 1-step assembly - may be many steps per ass'y Time Std. Period Prod.% Std. Std. Std. Std.
Qty per UM Qty PFD Time Productivity for Std. Minutes Price Cost ea. Cost ea.
4 LL2 Leg assemblies Minutes 6.0 12% 6.8181818182 89% 93% 7.331 $ 12.00 $ 1.466 $ 5.865 4 per table
1 AA2 Top Assembly Minutes 11.5 12% 13.068 92% 94% 13.9023210832 $ 14.75 $ 3.418 $ 3.418 1 per table
Can
6.0 89% Use +G46/(1-H46) Total $ 9.283 Cost
This 6 / (1 - 12%)
Variable OH 4 LL2 7.331 29.326
1 AA2 13.902 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.
Production and Machine-Hour Data
Budgeted production 30,000 units
Standard machine-hours per unit 3.00 hours
Budgeted machine-hours 90,000 hours
Actual production 28,000 units each 3.00
Standard machine-hours allowed for the actual production 84,000 hours act @ std Q made 28,000
Actual machine-hours 88,000 hours
Cost / Spending Data
BUDGET: Rate per machine hour
Budgeted variable manufacturing overhead $ 90,000 $ 1.000 Std. 90000 X $ 1.000
Budgeted fixed manufacturing overhead 270,000 $ 3.000 Std. $ 270,000 / 90,000
Total budgeted manufacturing overhead $ 360,000 $ 4.000 Std. $ 1.000 + $ 3.000
ACTUAL: Rate per Actual hour
Actual variable manufacturing overhead given $ 100,000 $ 1.136 $ 100,000 / 88,000
Actual fixed manufacturing overhead given 280,000 $ 3.182 $ 280,000 / 88,000
Total actual manufacturing overhead $ 380,000 $ 4.318
FLEX budget for Volume
Units 88,000
Variable OH $ 88,000 $ 1.000 Budget rate
Fixed OH $ 270,000 fixed 264000
Total $ 358,000
Applied or Standard or Absorbed overhead
Units 84,000 std hrs for act. Qty.
Variable OH $ 84,000 $ 1.000
Fixed OH $ 252,000 $ 3.000
Total $ 336,000 $ 4.000 16016
Excel 4
Budget vs. Actual
Managerial Accounting: Variable Fixed Total
Plan $ 90,000 $ 270,000 $ 360,000
FLEX $ 88,000 $ 270,000 $ 358,000
Actual $ 100,000 $ 280,000 $ 380,000
Fav/[Unfav] Volume $ 2,000 $ - 0 $ 2,000 Fav spend less
Fav/[Unfav] Spending $ (12,000) $ (10,000) $ (22,000) 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 $ 84,000 $ 252,000 $ 336,000 84,000 Fav/(Unfav) 88,000 84,000 $ 2,000 volume
Rate variance $ (12,000) $ (12,000) (0.136) ∆ rate. X act.hrs. $ (22,000) 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 $ (18,000) $ (18,000) ∆ Budget or Plan Spending - Actual spdg. OR ∆ Hrs. Budget - std hrs X std.rate
Total/Net variances $ (44,000) BUDGET: ACTUAL:
270,000 280,000
(10,000)
Excel 5 BUDGET: Applied or Standard or Absorbed overhead
Doing the Accounting with Standard Costs 90,000 84,000 (6,000)
Only standard material costs enter inventory $ 3.000 std fxd rate
Purchase price variances are removed at receipt (18,000)
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
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 500
material purchased at actual cost A/P 525
Difference std - to actual variance acctg in CoGS 25
if Act > std If std > act unfav.var.
Materials Used DR CR DR CR
Materials into WIP @ std. WIP 615
Materials into WIP @ std. Matl. Inventory 615
Std. matl in Production Completed FG 600
Matl. @ std. used in Production Completed WIP 615
Difference std - to actual variance acctg in CoGS 15
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
Difference std - to actual FAV variance acctg in CoGS FAV
if Act > std Unfav If std > act: FAV
Production Completed FG 402
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 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 4 $ 1,000 $ 683
$ (0) $ (0)
initial [0] 1 2 3 4
Buy Machine (3,170)
Cash inflow 1,000 1,000 1,000 1,000
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
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)
Cost of Capital PE on
Excel 2 Additional Future
$billion Interst rate PE now earnings
Debt 50 8.0% 0.25 2.0%
Market cap 150 18 14.5 0.75 5.2%
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
Relining equipment in 3 years 30,000
Salvage value of equipment in 5 years 5,000
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 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
0 ($160,000) ($100,000) $ (260,000) $ (260,000)
1 $ 99,975 $ 99,975 $ 90,886 =+E47/((1+F$43)^A47)
2 $ 99,975 $ 99,975 $ 82,624
3 ($30,000) $ 99,975 $ 69,975 $ 52,573 $ 161,641
4 $ 99,975 $ 99,975 $ 68,284 29.7%
5 $5,000 $100,000 $ 99,975 $ 204,975 $ 127,273 $ 161,641
NPV $ 161,641 +E46+NPV(F43,E47:E51)
IRR 29.7% +IRR(E46:E51,0.1)
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 10.4% $ 0 Back to PPT 21
Back to PPT 21
Cash flow per year Inflow Working Net 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
$ 0 Back to PPT 21
NPV @ Hurdle Rate $ 28,156 18.6% $ 150,000 $ 28,156 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%
EXCEL "IRR" function 10 $ 20,000 5,395 =+E95/(1+$E$96)^D95 Proof
=+IRR(E85:E95,.22) 14.0% 0
266666.666666667
Quick Check Excel 6
Year Proof by hand
0 $ (79,310) -79310
1 $ 22,000 19643
2 $ 22,000 17539
3 $ 22,000 15660
4 $ 22,000 13983
5 $ 22,000 12485
IRR 12.0% - 0
+IRR(F100:F105,0.15)
CAR
WASH
Excel 7 IRR problem
NOT NPV problem
A !0% not used
(300,000) New
(175,000) OLD
(125,000) Difference
B 40,000 OLD
(85,000) NET difference
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 ◄Answer ► 15,000 11,270 =+H131/(1+B$126)^B131
$ 175,000 4 45,000 60,000 15,000 10,245 =+H132/(1+B$126)^B132
$ 56,348 5 45,000 60,000 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 15,000 7,697 =+H135/(1+B$126)^B135
NEW 8 45,000 60,000 15,000 6,998 =+H136/(1+B$126)^B136
Profitability 9 45,000 60,000 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
$ 260,000 =+IRR(C128:C138,0.15) 17.6% 17.2% 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 56,348 =+C128+NPV(B126,C129:C138)
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
5 $ 30,000 $ 24,000 $ 6,000 $ 6,000 $ 3,116 =+F163/(1+$B$157)^B163
IRR 10.9% 13.4% (5,229)
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)
BAY
Excel 10
Rate 14% $34,320
Needed return $34,320
+PMT(F197,A207,D203)
+pmt(rate, nper,pv] $34,320
rate = 14%, Nper=4, pv = ($100K)
answer = "c."
PV$ PV$
Year Tangible Intangible Total PV$ Tangible Intangible Proof
0 $ (100,000) $ - 0 $ (100,000) $ (100,000) =+NPV(G216,L205:L224)
1 $ 10,000 24,320.48 $34,320 $ 30,106 $ 8,772 $ 21,334 $1,040,000.00 $s
2 $ 10,000 24,320.48 $ 34,320 $ 26,408 $ 7,695 $ 18,714 1 0
3 $ 10,000 24,320.48 $ 34,320 $ 23,165 $ 6,750 $ 16,416 2 0
4 $ 10,000 24,320.48 $ 34,320 $ 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
TANKER Excel 11 7 0
8 0
Pv of project End salvage value = $1040,000 9 0
Negative PV without salvage $ 1,040,000 10 0
20 Years 11 0
12% hurdle rate 12 0
PV x (1 + rate)^years $ 10,032,145 1.12 to the 20th power x shiortage 13 0
Future value of $ 1,040,000 after 20 years 14 0
+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) - 0
7 $ 35,000 $ 105,000 $ 13,987 $ 10,091
8 $ 35,000 $ 140,000 $ 12,270 $ 22,360 $ (3,897)
9 $ 35,000 $ 175,000 $ 10,763 $ 33,123 $ 13,987
10 $ 35,000 $ 210,000 $ 9,441 $ 42,564 0.28
4.00 Years 6.28
Excel 13 Discounted
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)
4 $ 1,800 $ 1,000 $ 1,066 $ (572)
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) $ (572) =+PV(14%,5,100)
$ 779 ($343.31)
0.73
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
ERROR:#REF!
(100) ERROR:#REF! =+PV(B355,A360,B356)
(100) ERROR:#REF! 343.31
(100) (67.50)
(100) (59.21)
(100) (51.94)
ERROR:#REF!

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?

If the interest rate is 14%, how much would you have to put in the bank today so as to be able to withdraw $100 at the end of each of the next five years? a. $34.33 b. $500.00 c. $343.30 d. $360.50

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

taxes

Proof

$22000 AFTER TAX

CASH INFLOW AFTER TAX

CASH INFLOW AFTER TAX

OP.COST AFTER TAX

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 #2 Purchase of PPE = $ 125,000 Data given A = L
Sale of PPE:NBV = $12000, Cost $24000, sold $14000) Purchase of Intangibles = $ 95,000 Data given Cost $ 85,000
Other comprehensive income in equity increased by $12000, offset in Other current assets $ 12,000 Sales of PPE = $ 43,000 Gain = $ 6,000 Data given AD $ 48,000 Debit é = Cash ê
Used Treasury Stock of $50,000 to buy PPE $ 50,000 Cost = $ 85,000 Data given BV $ 37,000
Sold common stock of $ 125,000 New Debt = $ 470,000 Sale $ 43,000
Paid dividend of $ 23,000 No Dividends
Affect on Class Company, Inc.
Class Company, Inc. Category Cash Balance Sheet as of
Balance Sheet as of Increase Increase 12/31/11 12/31/12 Cash
Assets: 12/31/11 12/31/12 (Decrease) (Decrease) Assets: Increase Increase
Current Assets: $s $s Current Assets: $s $s (Decrease) (Decrease)
Cash 150,000 340,000 190,000 (190,000) Cash 200,000 952,110 752,110 752,110
Accounts Receivable 355,000 418,000 63,000 (63,000) Accounts Receivable 385,100 438,000 52,900 (52,900)
Prepaid Expenses 27,000 19,000 (8,000) 8,000 Prepaid Expenses 33,000 29,000 (4,000) 4,000
Other Current Assets 15,000 11,000 (4,000) 4,000 Other Current Assets 22,000 7,000 (15,000) 15,000
Total Current Assets: 547,000 788,000 241,000 (241,000) Total Current Assets: 640,100 1,426,110
Plant Property & Equipment 954,000 1,127,000 173,000 (173,000) 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:
Intangibles 375,000 350,000 (25,000) 25,000 P&L item Intangibles 500,000 480,000 (20,000) 20,000 P&L item
Deferred Loan Placement Costs 25,000 25,000 0 0 P&L item Deferred Loan Placement Costs 30,000 30,000 0 0 P&L item
Other Non-Current assets 15,000 14,000 (1,000) 1,000 Other Non-Current assets 41,000 37,000 (4,000) 4,000
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 1,859,000 275,000 (275,000) 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
Accounts Payable 129,000 139,000 10,000 10,000 Accounts Payable 720,000 760,000 40,000 40,000
Accrued Expenses 51,000 64,000 13,000 13,000 Accrued Expenses 50,000 40,000 (10,000) (10,000)
Current Portion of LT debt 31,000 63,000 32,000 32,000 Other Current Liabilities 23,000 11,000 (12,000) (12,000)
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 Long Term Debt 1,100,000 915,000 (185,000) (185,000)
Long Term Debt 1,100,000 915,000 (185,000) (185,000) Deferred Income Taxes 55,000 71,000 16,000 16,000
Deferred Income Taxes 83,000 99,000 16,000 16,000 P&L item Other Non-current Liabilities 3,000 5,000 2,000 2,000 P&L item
Other Non-current Liabilities 14,000 12,000 (2,000) (2,000) Total Non-Current Liabilities 1,158,000 991,000
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 Common Stock @ par = $0.01 100 110 10 10
Common Stock @ par = $0.01 100 225 125 125 Additional Paid-in Capital 700,000 805,000 105,000 105,000
Additional Paid-in Capital 99,900 224,775 124,875 124,875 Retained Earnings 400,000 1,056,000 656,000 656,000
Treasury Stock 65,000 15,000 (50,000) 50,000 Total Owners' Equity 1,100,100 1,861,110
Dividends paid [before closing entries] 0 23,000 23,000 (23,000)
Other comprehensive income 0 $ 12,000 12,000 12,000 Total Liabilities and Owners Equity 3,311,100 3,953,110
Retained Earnings 118,000 357,000 239,000 239,000 Before
Total Owners' Equity 153,000 556,000 403,000 403,000 Dividends
acct. 0 0
Total Liabilities and Owners Equity 1,584,000 1,859,000 275,000 275,000 closed @ YE
Note: in this example we have Intangibles - which is also a non-cash charge to income
0 0 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 Income
Period Ending 12/31/2012
Class Company, Inc. $s $s
Statement of Income Revenue 7,000,000 100.0%
Period Ending 12/31/2012
$s $s Cost of Goods Sold 4,500,000 64.3%
Revenue 3,600,000 100.0%
Gross Profit 2,500,000 35.7%
Cost of Goods Sold 2,113,000 58.7%
Operating Expenses: 1,500,000 21.4%
Gross Profit 1,487,000 41.3% Operating Income 1,000,000 14.3%
Operating Expenses: Other Income/Gain 6,000 0.1%
Wage Expense 721,000 20.0%
Advertising & Marketing Expense 78,000 2.2% Provision for Income Taxes 505,000 7.2%
Vehicle Expenses 22,000 0.6%
Insurance and Other 48,000 1.3% Operating Income 1,000,000 14.3%
Depreciation 125,000 3.5%
Write-off of Goodwill 25,000 0.7% Other Income 6,000 0.1%
Total Operating Expenses 1,019,000 28.3% Taxes 350,000 5.0%
Operating Income 468,000 13.0% Net Income 656,000 9.4%
Other Income ( 2,000 0.1% Class Company, Inc.
Statement of Cash Flows for Period Ending 12/31/2012
Income Before Taxes 470,000 13.1% $s
Cash Flows From Operating Activities:
Provision for Income Taxes 231,000 6.4% Net Income 656,000 ∆ C - AD $ 43,000
Plus: Depreciation 208,000 $ 160,000 $ 48,000 $ (6,000)
Net Income 239,000 6.6% Plus: Amortization Expense 115,000 $ 20,000 $ 95,000 $ 37,000
Changes in Current Assets and Liabilities ∆ Purchase [data] BV
(Increase) Accounts Receivable (52,900)
Decrease Prepaid Expenses 4,000
Decrease Other Current Assets 15,000
Class Company, Inc. Increase Accounts Payable 40,000
Statement of Cash Flows for Period Ending 12/31/2012 Increase Accrued Expenses (10,000)
(Decrease) Other Current Liabilities (12,000)
$s Other Changes
Cash Flows From Operating Activities: Less: Gain om Sale of PPE (6,000)
Net Income 239,000 Increase in Deferred Taxes 16,000 defrred tax Non-current are Operating
Plus: Depreciation Expense 125,000 113,000 12,000 Decrease in Non-current Liabilities 2,000 Given: Financing unless otherwise indicated
Plus: Amortization Expense 25,000
Less: Gain on Sale of PPE (2,000) Total Change in Cash from Operating Activities 975,100
Changes in Current Assets and Liabilities
(Increase) Accounts Receivable (63,000) Cash From Investing Activities
Decrease Prepaid Expenses 8,000 Sale of PPE 43,000 from data set
Increase Other Current Assets 16,000 Capital Expenditures: PPE (125,000) (40,000) (85,000)
Increase Accounts Payable 10,000 Purchase of Intangibles (95,000) ∆ cost sold
Increase Accrued Expenses 13,000 Other Non-Current assets 4,000
(Decrease) Other Current Liabilities (12,000) Total Cash Flows from Investing Activities (173,000)
Other Changes Cash Flows from Financing Activities Dividends would be here as cash down
Increase in Deferred Taxes 16,000 Sale of Stock:Increase in Invested Capital 105,010
Decrease in OtherNon-current Liabilities (2,000) a given acct. detail not avail to student New Debt 470,000 Current Non-current
Total Change in Cash from Operating Activities 373,000 Repayment of Debt (625,000) (470,000) 30,000 (185,000) (155,000)
Total Cash Flows from Financing Activities (49,990) New Debt (-)
Cash From Investing Activities
Capital Expenditures (197,000) (173,000) (24,000) Net Change in Cash Position 752,110 0 Check
Other Non-current Assets 1,000 Opening Cash Balance 200,000
Proceeds from disposal of PPE 14,000 Ending Cash Balance 952,110
Total Cash Flows from Investing Activities (182,000)
Cash Flows from Financing Activities
Repayment of Debt (600,000) (185,000)
Additional borrowing 447,000 31,000 63,000 current 30,000
Sale of Stock 125,000 1,100,000 915,000 non current (470,000)
Use of treasury stock 50,000 1,131,000 978,000 (153,000)
Dividends paid (23,000) down
Total Cash Flows from Financing Activities (1,000)
Net Change in Cash Position 190,000
Opening Cash Balance 150,000
Ending Cash Balance 340,000 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 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.

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 1.35294117 64705883 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

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 V*A*R*I*A*B*L*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

2

3

6

1

7

5

4

1

6

8

4

2

3

5

7

9

11

10

cell ref.

increase by 10000 using formula

text box ▼

8

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

Actual data

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

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 10932.38833071419 11466.99708102186 12169.839354153622 13040.915150109477 15530.77128790604 20469.359813475501 22604.056291976758 21990.938564351178 19598.284017519643 16203.705379202409 10169.729693911639 11624.01503565768

Actual data

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

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:

#3

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:

#4

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
&A
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
&A
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
&A
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

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
&A
Page &P

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
&A
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
&A
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)
&A
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
&A
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
&A
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
&A
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
&A
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%
&A
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
&A
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

McGraw-Hill/Irwin

Slide *

Excel B

100% of these

McGraw-Hill/Irwin

Slide *

 Prepare Management Reports

Product Margin Calculations

The second step in computing product margins is to
incorporate the previously [directly Traced product costs] computed activity-based
cost assignments pertaining to each product.

*

The second step is to incorporate the previously computed activity-based cost assignments pertaining to each product.

Ch.7 PPT Additions 3/1/2017

McGraw-Hill/Irwin

Slide *

 Prepare Management Reports

Product Margin Calculations

The third step in computing product
margins is to deduct each product’s
direct and indirect costs from sales.

EXCEL C

*

The third step is to compute product margins ($8,372,000 for SureStarts and a loss of $1,132,000 for LongLifes) by deducting each product’s direct and indirect costs from its sales.

Ch.7 PPT Additions 3/1/2017

McGraw-Hill/Irwin

Slide *

End Assignment of Costs to Product Lines

*

The third step is to compute product margins ($8,372,000 for SureStarts and a loss of $1,132,000 for LongLifes) by deducting each product’s direct and indirect costs from its sales.

Ch.7 PPT Additions 3/1/2017

McGraw-Hill/Irwin

Slide *

Let’s take a look at how Baxter Battery’s system works for just one of the 2,000 customers – Acme Auto Parts who placed a total of twelve orders. Note that the four orders for LongLifes required a design change {assumes design changes traceable to customer}

.

Orders

  • Eight orders for 60 SureStarts per order. [8x60=480]
  • Four orders for 50 LongLifes per order. [4x50=200]

12 orders total

Machine-hours

  • The 480 SureStarts required 288 [36/60 min] machine-hours.
  • The 200 LongLifes required 160 [ 48/60 min] machine hours.
  • Sum = 448

Assigning ABC Overhead to Customers

1

4

448

12

*

Acme Auto Parts placed twelve orders. Eight orders were for 60 SureStarts each, and four orders were for 50 LongLifes each. The 480 SureStarts required 288 machine-hours, and 200 LongLifes required 160 machine-hours.

Ch.7 PPT Additions 3/1/2017

McGraw-Hill/Irwin

Slide *

 Prepare Management Reports// Data Reminder

A

B

C

D

*

The first step in computing Acme Auto Parts’ customer margin is to gather its sales and direct cost data which are assumed to be as shown.

Ch.7 PPT Additions 3/1/2017

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 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

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
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
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
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
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
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
S Fringe benefits for Admin. $ 200.00 $ 200 $ 200
T Process utilitiy cost $ 400.00 $ 400 $ 400
U Solder & solvents $ 200.00 $ 200 $ 200
V Derperciation factory Bldg. & eqpmnt. $ 1,860.00 $ 1,860 $ 1,860
W Variable Administrative expenses 1% of sales $s $ 990 $ 990
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 $ 55,800 $ 61,425
Variable Selling Expenses $ 4,455 $ 1,575
Selling & Administrative Expense Variable Admin. Expenses $ 990 $ 2,650
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 Regression
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
A8 2310 $ 10,113 $ 10,568
A9 2453 $ 12,691 $ 11,085 Difference:Min [Lo] - Max {Hi]
A10 2641 $ 10,905 $ 11,765 Units $
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
A17 3720 $ 18,383 $ 15,668 Y = 3.617X + 2212.598
A18 2106 $ 9,830 $ 9,830
A19 2495 $ 11,081 $ 11,237 after you have computed "b" then compute "a'
Varible-bX
Min 2106 $ 9,830 $ 7,617.40 $ 2,212.60 fixed = a
Max 5432 $ 21,860 $ 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---&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
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 Applied 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 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.] Memo $10,000 $1,500 % 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 applied
Dr. Inventory= Under applied [inventory too low, profit too low] 87% 13% 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 $4,163 ←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)

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)

1

3

1

1

4

2

Ch. 4 process Board e.g.

Board Example
Weighted Average
Ch. 4 Process Costing Equivalent
$s Qty % Units
Beginning $ 22,000 6,000 75% 4,500
Started in Period $ 50,000 10,000
Completed in period 11,000 100% 11,000
Ending 5,000 60% 3,000
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 & completed 11000-6000= 5,000 100% 5,000 11000 completed
5000from started
Ending 5,000 60% 3,000
Equivalent units done for period costsèè 9,500
Cost Each $ 5.26
Ending inventory $ 15,780
5.26 x 3000
Sheet Income
Balance Statement
Account Title Accounts Accounts
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: manifacturing spending [Cr.]
Applied overhead Acct. [@actual OR @ POHR] CoGS: manifacturing spending [Dr.]
WIP is credited

Handout

Ch. 4 slides 40-50

Ch.4 Process cost
Weighted Average Inventory Valuation Method (FIFO Average) 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 $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 $378,600 5000 $350,900 $ 729,500 Total costs to be accounted $744,675
Completed 4800 100% 4800 4800 100% 4800
Ending 400 40% 160 400 25% 100
Cost accounted for as follows:
Equivalent Production $388,200 4960 $356,475 4900 Cost of units transferred out $ 724,877
Ending WIP Inventory $19,798
Total $ for Wghtd. Avgr. inventory valuation $378,200 $356,475 $ 734,675 Cost of ending Work in Process Inventory $19,798
Per unit $78.27 $72.75 $ 744,675 Ending WIP Inventory $ 19,798
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
$388,200 4960 $356,475 4900 $ 744,675
0.00
FIFO: Appendix A
Department: SMD Materials Conversion = DL + Variable Overhead Total $ F I F O
Units $ % complete Equiv. Units Units $ % complete Equiv. Units
Beginning 200 $9,600 55% 110 200 $5,575 30% 60 $ 15,175
Completion of beginning units 45% 90 70% 140
Started 5000 $378,600 5000 $350,900 $ 719,500
Completed 4800 100% 4800 100% 4800
Started & completed this period 4600 100% 4600 4600 100% 4600
Ending 400 40% 160 400 25% 100
Equivalent Production $378,600 4850 Work done in the period only 4840
Total $ for FIFO $378,600 $350,900 $ 719,500
Per unit $78.06 $72.50 $ 150.56
To next department 4800 $376,040 100% 4800 4800 $349,225 100% 4800 $ 725,265
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
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

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.4 Cost alloc NO

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
Data Set: #3
Support Departments Operating Departments
Maintenance IT Support Machining Assembly Total:
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 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%
$ 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
Allocated support costs Maintenance IT Support
aj Machining 225,000 103,111 + ac opera * ah , ai
ak Assembly 375,000 12,889 + ac mach * ah , ai
al Total 600,000 116,000
Direct Fixed OH costs Direct Allocated Total Rate
az +ab + aj Machining 400,000 328,111 728,111 $ 303.38
ax +ab + ak Assembly 200,000 387,889 587,889 $ 146.97
aw + az + ax Total 600,000 716,000 1,316,000
Step Down Method of Overhead Allocation
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
$ (120,000)
ae IT base = Computer Hours 200 1600 200 2,000 $ 480,000 M to Prodn
af % 10.0% 80.0% 10.0% 100.0%
ab Functional Spending $s $ 600,000 $ 116,000 $ 400,000 $ 200,000 $ 1,316,000
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.%
af From IT to Opera. Depts. $ 209,778 $ 26,222 $ 236,000 + af * ad IT
ag Total: $ 789,778 $ 526,222 $ 1,316,000 + af + ag
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 $ 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.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
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
Operating Income [above] $20,000 / Op. Inc. $20,000
Leverage Ratio 5.00 CM$ / Operating Income Ratio 5.00
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
j Variable costs & Expense $300 $ 150,000
k Contribution margin $200 $ 100,000 +$200/$500=40% CM% Contrib ratio $s
l Fixed expenses $80,000 $100,000/$250,000=40%
m Net income [Operating Income] $20,000
D
Using CM% Using CMu
Fixed costs & expenses $80,000 $180,000
+Target Profit $100,000 CMu $200.00
Sunm to be covered by Sales $180,000 Qty 900
P $500.00
+CM% 40.0% $450,000
Target Sales $450,000 Target Sales
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

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
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
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
Profit [contribution format IS] at What if #1 Qty.
540 per unit $s %
units Sales $500 $ 270,000 [was $250K] 100.0% i / i 500 40 Qty
Variable costs & Expense $300 $ 162,000 60.0% j / i
Contribution margin $200 $ 108,000 40.0% k / i CM%
Fixed expenses $90,000 [was 80,000] 33.3% l / i $80,000 $10,000 Fxd. Exp
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
q Net Change profit Incr/(Decr) $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.
per unit $s %
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%
Fixed expenses $80,000 27.6%
s Net income [Operating Income] $30,200 10.4%
80 units Net change Var.cost/unit $10
t Net Change profit Incr/(Decr) $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 %
Sales $480 $ 312,000 [was $500] 100.0% 500 150 Qty
Variable costs & Expense $300 $ 195,000 62.5% $500 ($20) SP unit
Contribution margin $180 $ 117,000 37.5% CM%
Fixed expenses $95,000 [was $80,000] 30.4% $80,000 $15,000 Fxd Exp
v Net income [Operating Income] $22,000 7.1%
150 units Net change Sp down Adv up[ 650 X $20
w Net Change profit Incr/(Decr) 150 X $200 $30,000 $2,000 ($13,000) ($15,000) Adv. Up
r X c1 [r qty+ g] X r ∆SP Net change from the Base Case
What IF
C4
What IF #4 Qty Commissions∆ Fxd Exp
x Sales up 75 units Comm.unité $15 Fxd Expê $6,000
Profit [contribution format IS] at What if #3 Qty.
per unit $s %
Sales $500 $ 287,500 100.0% 500 75 Qty
Variable costs & Expense $315 $ 181,125 [was $300] 63.0% $300 $15 Var.cost-Exp
Contribution margin $185 $ 106,375 37.0% CM%
Fixed expenses $74,000 [was $80K] 25.7% $80,000 ($6,000) Fxd
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 $80,000 BE units 400
CM$/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
SP unit $500 To have a profit of $ 100,000
Var.cost per unit $300 Total Fxd $80,000
CM$/unit $200 Sum $ 180,000
CM% 40.0%
CM$/unit $200
Target Units 900 $180000 / $200
Manufacturing $50,000 @SP/unit $450,000 Target revenue
S&A $30,000
Total Fxd $80,000 OR CM% 40.0% $180,000 / 40%
$ 450,000 Target revenue
Sales Budget [Base] 500 Base case 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

ACC220---HCT---Ch.5 CVP---&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 $332,500 $s
Variable cost per Unit 800 Units
Direct Materials $ 200.00 $ 125.00 $ 171.88 Weighted average $ 415.63 average
Variable LOH $ 75.00 $ 60.00 $ 69.38 Weighted average
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 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%
Fixed Costs & Expenses $ 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
Breakeven
Fixed Costs & Expenses $ 80,000 $ 20,000 $ 100,000 using Mix % x BE sales $ $100,000
CM% 40.0% 27.3% 36.8% CM% 75.2% 24.8% 36.8%
Breakeven $204,082 $67,347 $271,429 Method $271,429 $271,429 $ 271,429
BE $-Mix 75.2% 24.8% 100% $ 204,082 $ 67,347
Bikes Carts
Breakeven 81,633 18,367 100,000
Fixed Costs & Expenses $ 80,000 $ 20,000 $ 100,000 using 40.0% 27.3% CM %
CM$ per unit $ 200.00 $ 75.00 $ 153.13 Units
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%

1

2

3

1

3

2

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
total Direct to Products
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
General Administrative Department 9 expense categories to be allocated
Administrative wages and salaries 4,000,000
Office equipment depreciation 900,000
Administrative building lease 1,100,000 6,000,000
Marketing Department
Marketing wages and salaries 1,500,000
Selling expenses 500,000 2,000,000
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* Other Not allocated Total Product of %s above X Total Amounts for department
Production Department 30% X $6000,000
Indirect factory wages 1,800,000 1,800,000 1,200,000 600,000 600,000 6,000,000 Manufacturing overhead
Factory equipment depreciation 700,000 350,000 2,100,000 - 0 350,000 3,500,000 14,000,000
Factory utilities - 0 250,000 1,500,000 - 0 750,000 2,500,000 3,700,000 unassigned ABC
Factory building lease - 0 - 0 - 0 - 0 2,000,000 2,000,000 26.4%
General Administrative Department - 0 - 0 - 0 - 0 - 0
Administrative wages and salaries 1,200,000 400,000 400,000 1,200,000 800,000 4,000,000 General Administrative Department
Office equipment depreciation 270,000 90,000 - 0 180,000 360,000 900,000 6,000,000 37.7%
Administrative building lease - 0 - 0 - 0 - 0 1,100,000 1,100,000 2,260,000 unassigned ABC
Marketing Department
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 4,520,000 3,040,000 5,200,000 3,080,000 6,160,000 22,000,000
Given dataè
Activity Level [3] Money is in the pool 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 Hrs. Units Extd. Hrs.
$Amt. per Activity unit [3] $ 452.00 $ 760.00 $ 6.50 $ 1,540.00 N/A 0.8 400000 320000
Denominator - Qty. of the pool activity = Z 0.6 800000 480000 800000
Summary
Allocation ABC Direct or otherwise traced
Direct materials 15,000,000
Direct labor 12,000,000
Manufacturing overhead 14,000,000
Shipping expenses 3,000,000
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
Not traced to ABC object (6,160,000)
To ABC Objects 15,840,000 15,840,000 30.5% in ABC pools
------Product Lines------
Pools $ in Pool Activity Measure Qty of Act. Measure Rate Sure Starts [A] Long Lifes [B] Total
Customer Orders 4,520,000 Customer Orders 10,000 $ 452.00 4,000 6,000 10,000
Design changes 3,040,000 Design changes 4,000 $ 760.00 - 0 4,000 4,000
Order Size 5,200,000 Machine Hours 800,000 $ 6.50 480,000 320,000 800,000
Customer Relations 3,080,000 Number of Customers 2,000 $ 1,540.00 Measured Actual Measured Actual From date set given
15,840,000
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
Total Measured Actual $ 4,928,000 31.1%
5,200,000
[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
Design changes 760.00 4,000 3,040,000 $ 12,760,000
Order size {object is Product} 6.50 320,000 2,080,000 15,840,000 total to objects
Total Measured Actual $ 7,832,000 49.4% 3,080,000 to objects not to products
$ 12,760,000 80.6% total ABC to Products
Each Assignable costs $ 3,080,000 to customers
$ 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
$ 6.50 Order Size 5,200,000
SUM 12,760,000 12,760,000
Cust. basis-Not assignable to Prod.A or B 3,080,000 Product A 480,000 Mach.Hrs.
Product B 320,000 Mach.Hrs.
Rate = $ 6.50
ABC P&L Sure Starts [A] Long Lifes [B] Total From: Excel C
Sales 31,300,000 18,700,000 50,000,000
Direct costs
Direct material 9,000,000 6,000,000 15,000,000 Cost system data from cost system
Direct labor 7,000,000 5,000,000 12,000,000 Cost system data from cost system
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
Subtotal 18,000,000 12,000,000 30,000,000 Given dataÚ
Contrib $s 13,300,000 6,700,000 20,000,000
Contrib % 42% 36% 40%
Activity Pool Costs -Product Related: ABC Assigned
Order Size-Machine Hours 3,120,000 2,080,000 5,200,000
Customer Orders 1,808,000 2,712,000 4,520,000 ABC
Design changes - 0 3,040,000 3,040,000 ABC
Subtotal 4,928,000 7,832,000 12,760,000 ABC
ABC Traceable/Assigned Expenses/Costs
27% -6% 14%
Product Margin ******** 8,372,000 (1,132,000) 7,240,000 ********
ABC Unassigned to Product Lines 6,160,000 Unallocated 9,240,000 not in a pool
*** ABC # of Customers 'Customer common to both A & B 3,080,000 ABC/Product in a poll 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 Sure Starts [A] Long Lifes [B] Total From:
Sales 31,300,000 18,700,000 50,000,000
Cost of Goods Sold [no ∆ in inventory] No change in inventory
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 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.
Selling and administrative expenses 11,000,000 all non-manufacturing expenses
Operating Income [Loss] (2,000,000)
Variable/Contribution Sure Starts [A] Long Lifes [B] Total From:
Sales 31,300,000 18,700,000 50,000,000
No change in inventory
Variable costs & expenses
Direct material 9,000,000 6,000,000 15,000,000 Cost system Same as GAAP/ABC
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 $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 $1,700 +
Variable Sell/Admin 8% of sales 2,504,000 1,496,000 4,000,000 8% is a Given % $15,900 =
Total Variable Costs & expenses 24,284,000 16,016,000 40,300,000
Contribution Margin 7,016,000 2,684,000 9,700,000
22.4% 14.4% 19.4% 22,000,000 Total overhead costs for allocation
Fixed (6,300,000) Manufacturing: 45% variable
Manufacturing 7,700,000 (4,000,000) Variable Sell/Admin 8% of sales
General administrative expenses 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 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%
GAAP/Traditional 22.0% 11.2% 18.0%
Variable/Contribution 22.4% 14.4% 19.4%
% of Total
ABC P&L 115.6% -15.6% 100.0%
GAAP/Traditional 76.7% 23.3% 100.0%
Variable/Contribution 72.3% 27.7% 100.0%
back 42

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

an objection to ABC is forcing a distribution

an objection to ABC is treating fixed as variable

Given data

Given data

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 #2 Purchase of PPE = $ 125,000 Data given
Sale of PPE:NBV = $12000, Cost $24000, sold $14000) Purchase of Intangibles = $ 95,000 Data given Cost $ 85,000
Other comprehensive income in equity increased by $12000, offset in Other current assets $ 12,000 Sales of PPE = $ 43,000 Gain = $ 6,000 Data given AD $ 48,000
Used Treasury Stock of $50,000 to buy PPE $ 50,000 Cost = $ 85,000 Data given BV $ 37,000
Sold common stock of $ 125,000 New Debt = $ 470,000 Sale $ 43,000
Paid dividend of $ 23,000 No Dividends
Affect on Class Company, Inc.
Class Company, Inc. Category Cash Balance Sheet as of
Balance Sheet as of Increase Increase 12/31/11 12/31/12 Cash
Assets: 12/31/11 12/31/12 (Decrease) (Decrease) Assets: Increase Increase
Current Assets: $s $s Current Assets: $s $s (Decrease) (Decrease)
Cash 150,000 340,000 190,000 (190,000) Cash 200,000 952,110 752,110 752,110
Accounts Receivable 355,000 418,000 63,000 (63,000) Accounts Receivable 385,100 438,000 52,900 (52,900)
Prepaid Expenses 27,000 19,000 (8,000) 8,000 Prepaid Expenses 33,000 29,000 (4,000) 4,000
Other Current Assets 15,000 11,000 (4,000) 4,000 Other Current Assets 22,000 7,000 (15,000) 15,000
Total Current Assets: 547,000 788,000 241,000 (241,000) Total Current Assets: 640,100 1,426,110
Plant Property & Equipment 954,000 1,127,000 173,000 (173,000) 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:
Intangibles 375,000 350,000 (25,000) 25,000 P&L item Intangibles 500,000 480,000 (20,000) 20,000 P&L item
Deferred Loan Placement Costs 25,000 25,000 0 0 P&L item Deferred Loan Placement Costs 30,000 30,000 0 0 P&L item
Other Non-Current assets 15,000 14,000 (1,000) 1,000 Other Non-Current assets 41,000 37,000 (4,000) 4,000
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 1,859,000 275,000 (275,000) 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
Accounts Payable 129,000 139,000 10,000 10,000 Accounts Payable 720,000 760,000 40,000 40,000
Accrued Expenses 51,000 64,000 13,000 13,000 Accrued Expenses 50,000 40,000 (10,000) (10,000)
Current Portion of LT debt 31,000 63,000 32,000 32,000 Other Current Liabilities 23,000 11,000 (12,000) (12,000)
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 Long Term Debt 1,100,000 915,000 (185,000) (185,000)
Long Term Debt 1,100,000 915,000 (185,000) (185,000) Deferred Income Taxes 55,000 71,000 16,000 16,000
Deferred Income Taxes 83,000 99,000 16,000 16,000 P&L item Other Non-current Liabilities 3,000 5,000 2,000 2,000 P&L item
Other Non-current Liabilities 14,000 12,000 (2,000) (2,000) Total Non-Current Liabilities 1,158,000 991,000
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 Common Stock @ par = $0.01 100 110 10 10
Common Stock @ par = $0.01 100 225 125 125 Additional Paid-in Capital 700,000 805,000 105,000 105,000
Additional Paid-in Capital 99,900 224,775 124,875 124,875 Retained Earnings 400,000 1,056,000 656,000 656,000
Treasury Stock 65,000 15,000 (50,000) 50,000 Total Owners' Equity 1,100,100 1,861,110
Dividends paid [before closing entries] 0 23,000 23,000 (23,000)
Other comprehensive income 0 $ 12,000 12,000 12,000 Total Liabilities and Owners Equity 3,311,100 3,953,110
Retained Earnings 118,000 357,000 239,000 239,000 Before
Total Owners' Equity 153,000 556,000 403,000 403,000 Dividends
acct. 0 0
Total Liabilities and Owners Equity 1,584,000 1,859,000 275,000 275,000 closed @ YE
Note: in this example we have Intangibles - which is also a non-cash charge to income
0 0 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 Income
Period Ending 12/31/2012
Class Company, Inc. $s $s
Statement of Income Revenue 7,000,000 100.0%
Period Ending 12/31/2012
$s $s Cost of Goods Sold 4,500,000 64.3%
Revenue 3,600,000 100.0%
Gross Profit 2,500,000 35.7%
Cost of Goods Sold 2,113,000 58.7%
Operating Expenses: 1,500,000 21.4%
Gross Profit 1,487,000 41.3% Operating Income 1,000,000 14.3%
Operating Expenses: Other Income/Gain 6,000 0.1%
Wage Expense 721,000 20.0%
Advertising & Marketing Expense 78,000 2.2% Provision for Income Taxes 505,000 7.2%
Vehicle Expenses 22,000 0.6%
Insurance and Other 48,000 1.3% Operating Income 1,000,000 14.3%
Depreciation 125,000 3.5%
Write-off of Goodwill 25,000 0.7% Other Income 6,000 0.1%
Total Operating Expenses 1,019,000 28.3% Taxes 350,000 5.0%
Operating Income 468,000 13.0% Net Income 656,000 9.4%
Other Income ( 2,000 0.1% Class Company, Inc.
Statement of Cash Flows for Period Ending 12/31/2012
Income Before Taxes 470,000 13.1% $s
Cash Flows From Operating Activities:
Provision for Income Taxes 231,000 6.4% Net Income 656,000 ∆ C - AD $ 43,000
Plus: Depreciation 208,000 $ 160,000 $ 48,000 $ (6,000)
Net Income 239,000 6.6% Plus: Amortization Expense 115,000 $ 20,000 $ 95,000 $ 37,000
Changes in Current Assets and Liabilities ∆ Purchase [data] BV
(Increase) Accounts Receivable (52,900)
Decrease Prepaid Expenses 4,000
Decrease Other Current Assets 15,000
Class Company, Inc. Increase Accounts Payable 40,000
Statement of Cash Flows for Period Ending 12/31/2012 Increase Accrued Expenses (10,000)
(Decrease) Other Current Liabilities (12,000)
$s Other Changes
Cash Flows From Operating Activities: Less: Gain om Sale of PPE (6,000)
Net Income 239,000 Increase in Deferred Taxes 16,000 defrred tax Non-current are Operating
Plus: Depreciation Expense 125,000 113,000 12,000 Decrease in Non-current Liabilities 2,000 Given: Financing unless otherwise indicated
Plus: Amortization Expense 25,000
Less: Gain on Sale of PPE (2,000) Total Change in Cash from Operating Activities 975,100
Changes in Current Assets and Liabilities
(Increase) Accounts Receivable (63,000) Cash From Investing Activities
Decrease Prepaid Expenses 8,000 Sale of PPE 43,000 from data set
Increase Other Current Assets 16,000 Capital Expenditures: PPE (125,000) (40,000) (85,000)
Increase Accounts Payable 10,000 Purchase of Intangibles (95,000) ∆ cost sold
Increase Accrued Expenses 13,000 Other Non-Current assets 4,000
(Decrease) Other Current Liabilities (12,000) Total Cash Flows from Investing Activities (173,000)
Other Changes Cash Flows from Financing Activities Dividends would be here as cash down
Increase in Deferred Taxes 16,000 Sale of Stock:Increase in Invested Capital 105,010
Decrease in OtherNon-current Liabilities (2,000) a given acct. detail not avail to student New Debt 470,000 Current Non-current
Total Change in Cash from Operating Activities 373,000 Repayment of Debt (625,000) (470,000) 30,000 (185,000) (155,000)
Total Cash Flows from Financing Activities (49,990) New Debt (-)
Cash From Investing Activities
Capital Expenditures (197,000) (173,000) (24,000) Net Change in Cash Position 752,110 0 Check
Other Non-current Assets 1,000 Opening Cash Balance 200,000
Proceeds from disposal of PPE 14,000 Ending Cash Balance 952,110
Total Cash Flows from Investing Activities (182,000)
Cash Flows from Financing Activities
Repayment of Debt (600,000) (185,000)
Additional borrowing 447,000 31,000 63,000 current 30,000
Sale of Stock 125,000 1,100,000 915,000 non current (470,000)
Use of treasury stock 50,000 1,131,000 978,000 (153,000)
Dividends paid (23,000) down
Total Cash Flows from Financing Activities (1,000)
Net Change in Cash Position 190,000
Opening Cash Balance 150,000
Ending Cash Balance 340,000 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

&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

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

Ch. 15 H and V

Cablevision Comcast Cablevision Comcast Chapter 15
12/31/11 12/31/11 12/31/11 12/31/11
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
12/31/11 12/31/11 12/31/11 12/31/11 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 Analysis 08 - 07 2007
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 12/31/08 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
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
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

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, 2011, 2010, and 2009 [This is #2 data set from Cash Flow] Balance Sheet as of
(in millions, except per share amounts) 12/31/2xx1 12/31/2xx2
2011 2010 2009 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 2011 2010
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) 2011 2010 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 2011 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

Ch.15 FinRatio-Trend

ClassCo TREND
Year
Item 2014 2013 2012 2011 2010
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 2014 2013 2012 2011 2010
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 2014 2013 2012 2011 2010 1.4545454545454546 1.290909090909091 1.1636363636363636 1.0545454545454545 1 Cost of goods sold 2014 2013 2012 2011 2010 1.5 1.3157894736842106 1.1842105263157894 1.0421052631578946 1 Gross margin 2014 2013 2012 2011 2010 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

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

Ch.8

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
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
Budgeted Sales 200,000 500,000 300,000 250,000 150,000 320,000
Period ending cash CASH 30,000
Collections 30,000
70% 175,000 105,000 224,000
25% 62,500 37,500
Sum 205,000 167,500 261,500 634,000
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
Sales + Ending 28,000 21,400 39,200 44,400
Less Beginning (4,000) (3,000) (6,400) (7,200)
= Unit Production 24,000 18,400 32,800 37,200
Cost/Lb Cost/Unit
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
Required for Production - 0 120,000 92,000 164,000 186,000
$s Into FG for Production $ 48,000 $ 36,800 $ 65,600 $ 150,400 Qtr. Total
Budget Ending Inventory 13,000 9,200 16,400 18,600
Sales + Ending 129,200 108,400 182,600
Less Beginning (13,000) (9,200) (16,400)
Qty. Purchase of Raw material 116,200 99,200 166,200 Material budget
$s. Purchase of Raw material $ 46,480 $ 39,680 $ 66,480 Material budget
CASH Ending A/P $ 12,000
Cr. To A/P = purchases $ 46,480 $ 39,680 $ 66,480
Pay 50% current $ 23,240 $ 19,840 $ 33,240
Pay prior $ 12,000 $ 23,240 $ 19,840 Cash budget
Total paid $ 35,240 $ 43,080 $ 53,080 Cash budget $ 131,400 Qtr. Total
Ending A/P [Beginning + Additions - payments] $ 23,240 $ 19,840 $ 33,240
Guaranteed Hours Rate
Payment for quarter 1500 $ 10.00
Required Hrs. per unit 0.05
DL$s. per unit $ 0.50 700
Apr May Jun Qtr sum
= Unit Production 24,000 18,400 32,800 75,200
HRs of Prodctn. at Required per unit of 0.05 1,200 920 1,640 3,760
DL Cost of production at 10 per Hr $ 12,000 $ 9,200 $ 16,400 37,600
unfavorable variance of $ 7,400
Hrs paid 1,500 1,500 1,500 4,500 740 Hours
$s paid $ 15,000 $ 15,000 $ 15,000 45,000
Productivity at budget earned HRs/paid HRs 80% 61% 109%
Variable OH $s per HR $ 20.00 rate is per DL hr.
Required Hrs. per unit 0.05 Hrs. per unit
Variable OH $s per unit $ 1.00
Fxd. MOH per month $50,000
Non cash MOH $20,000
Cash Mfg. OH $30,000
Apr May Jun Qtr. Sum
= Unit Production 24,000 18,400 32,800 75,200 $50,000 $50,000 $50,000
1,200 920 1,640
HRs of Prodctn. at Required per unit of 0.05 1,200 920 1,640 3,760 41.67 54.35 30.49
VOH Cost of production at $20 per DL Hr $ 24,000 $ 18,400 $ 32,800
Fixed manufacturing OH per period $50,000 $50,000 $50,000 $ 150,000
Total MOH per Month $ 74,000 $ 68,400 $ 82,800 $ 225,200
F Mfg. OH rate/hr. $ 41.67 $ 54.35 $ 30.49 59.89
F Mfg. OH unit $ 2.08 $ 2.72 $ 1.52 $ 2.99 0.05 hrs. per unit
F Mfg. OH rate/hr. Quarter averageò Apr May Jun
Budgeted MOH rate per period 61.67 74.35 50.49 59.89 $ 41.67 $ 54.35 $ 30.49 Fxd rate
$ 20.00 $ 20.00 $ 20.00 V. Rate
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 Variable Fixed
0.40 $5.00 Materials $ 2.00
0.05 $10.00 DL $ 0.50 this excludes the unfav. DL variance of $ 7,400
0.05 $20.00 V Mfg. OH $ 1.00 $ 0.098 per unit
0.05 $59.89 F MFG. OH 2.99
Sum $ 3.50 $ 2.99
$ 6.49 average per unit for Qtr
CoGS chart Qty
given
Excel C Beginning Beginning $ 71,500 13,000 Excel B
+ Input addtions
Excel C Materials $ 150,400
Excel D Labor $ 45,000
Excel E Overhead $ 225,200 75,200 Excel B $50,000
Total $ 420,600
Average per FG unit 6.49 Excel E
- Ending (46,762) 7,200 Excel B
= CoGS $ 445,338
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
Non cash portion (10,000) (10,000) (10,000) (30,000)
Cash Period Expense 72,500 67,500 76,000 216,000
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 $ 634,000 Excel A
Cash avaialble $ 674,000
Cash disbursements:
Materials $ 131,400 Excel C
Direct labor $ 45,000 Excel D
Mfg. Overhead $ 165,200 Excel E required without interest $ (8,600)
Selling/Admin. $ 216,000 Excel G Borrowing $ 19,000 assumed day 1 of Qtr. In this example
Equipment Purchased $ 125,000 Given # months 3
Interest $ 285 6% interest $ 285 6%
Total $ 682,885
Excess Cash/(Required) $ (8,885)
Additional borrowing $ 19,000 Management decision [Given]
Ending Cash Balance $ 10,115
Royal Company
Statement of Income
QE: 6/30 GAAP, FAC
Sales 720,000 100.0% Excel A
Less: Cost of Goods Sold $ 445,338 61.9% Excel F
Gross Margin $ 274,662 38.1%
Selling & Admin, Expense 246,000 34.2% Excel G
Operating Income 28,662 4.0%
Interest Expense $ 285 0.0%
Income before taxes $ 28,947 4.0%
Royal Company
Month ending 6/30
Balance Sheet
Assets
Cash $ 10,115 Excel H
Accounts receivable 96,000 Excel A
Inventory 46,762 Excel F
Land 50,000 Given
Equipment 175,000 Given
Statement of Retained Earnings Total assets 367,762
Beginning $ 86,575
less: Dividends 0 Liabilities & Stockholders' Equity
Plus: Income $ 28,947 Accounts Payable $ 33,240 Excel C
Ending Retained Earnings $ 115,522 Long term debt $ 19,000 Excel H
Common stock $ 200,000 Given
Retained Earnings $ 115,522 ççright
Total Liabilities & Stockholders' Equity $ 367,762

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

Excel A Sales Budget

Excel C Materials

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

Ch.9 Flex A

STATIC Budget 1
For the Period Ended June 30
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
Gasoline and supplies 4,500 $ 9 units sold $ 4,500 $ - 0 500 $9
Equipment maintenance 1,500 $ 3 units sold $ 1,500 $ - 0 500 $3
Office and shop utilities 1,000 $ 1,000 $ - 0
Office and shop rent 2,000 $ 2,000 $ - 0
Equipment Depreciation 2,500 $ 2,500 $ - 0
Insurance 1,000 $ 1,000
Total expenses 32,500
Net operating income $ 5,000
ACTUAL 1
For the Period Ended June 30
Actual
Results
Number of units Driver 550 Actual
$ 78.18
Revenue $ 43,000 SP Each
Expenses:
Wages and salaries $ 23,500 given from Financials
Gasoline and supplies 5,100 given from Financials
Equipment maintenance 1,300 given from Financials
Office and shop utilities 950 given from Financials
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 Characteristics
Fixed Variable Basis
Revenue $ 37,500 $ 41,250 $ - 0 $ 75 units sold 3750
Expenses:
Wages and salaries $ 20,000 $ 21,500 $ 5,000 $ 30 units sold 1500
Gasoline and supplies 4,500 4,950 $ 9 units sold 450
Equipment maintenance 1,500 1,650 $ 3 units sold 150
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
No variable Equipment Depreciation 2,500 2,500 $ 2,500 0 550
No variable Insurance 1,000 1,000 $ 1,000 0 $ 21,500 $ 5,000 $ 16,500 flexed
Total expenses 32,500 34,600 y a bX
Net operating income $ 5,000 $ 6,650 $ 1,650 ←←Δ due to Volume =
STATIC v. FLEX Budget
For the Period Ended June 30 3
Single Driver = Units Sold F/(Unfav)
Planning Flexible Activity
Budget Budget or Volume
Variance Revenue
Number of units (Q) 500 550 50 Fav Variance
Revenue $ 37,500 $ 41,250 $ 3,750 Fav Driver
Expenses: Variable each Qty. bX a
Wages and salaries $ 20,000 $ 21,500 $ (1,500) Unfav $ 30 550 16,500 $ 5,000
Gasoline and supplies 4,500 4,950 $ (450) Unfav $ 9 550 4,950 $ - 0
Equipment maintenance 1,500 1,650 $ (150) Unfav $ 3 550 1,650 $ - 0
Office and shop utilities 1,000 1,000 $ - 0 --
Office and shop rent 2,000 2,000 $ - 0 --
Equipment Depreciation 2,500 2,500 $ - 0 --
Insurance 1,000 1,000 $ - 0 --
Total expenses 32,500 34,600 (2,100) Unfav
Net operating income $ 5,000 $ 6,650 $ 1,650 Fav
Single Driver = Units Sold
STATIC v. FLEX Budget 3
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
Expenses: Reminder Y = a + bX Fixed Variable
Wages and salaries $ 20,000 $ 21,500 $ (1,500) -7.5% U $ 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
Revenue 10.0% Up = Fav 3
Net operating income 33.0% Up = Fav
PPT 4 Single Driver = Units Sold
Revenue Variance Added Excel 4
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
Budget or Volume Budget Revenue Actual Variance All Controllable
Variance Variance
Number of units (Q) 500 550 550
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 //
Static 37,500 Units $s Each each Volume Spending
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
Activity (1,500) 50 30 $ 5,000
Price/other (2,000)
Actual 23,500 4
PPT
ClassCo Manufacturing
STATIC Budget Y=a+bX Static 5a
Multiple Drivers Budget
Sales Qty. 3,000 Hours 12,000 Driver 4.00 Hrs.Each
Sell each $ 340 Units 3,000 Driver
Sales 1,020,000 STATIC Budget
TWO Variable 67% 33%
Expense Driver Each Fixed Fixed Variable % Fxd.
100% V Direct labor DL Hours $ 14.00 0 168,000 0 168,000 0%
100% V Material & Supplies Units $ 22.00 0 66,000 0 66,000 0%
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%
Y=a+bX Testing Units $ 4.00 80,000 92,000 = $80,000 + $4 X 3000 units 80,000 12,000 87%
Y=a+bX 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
FLEX Budget 5b
Actual Actual
Hours 14,000 72,600 0
Actual UnitsSold 3,345 Units 3,300 made
Sales $ 1,137,300
TWO Variable 64% 36%
Expense Driver Each Fixed Fixed Variable Variable
Direct labor DL Hours $ 14.00 0 196,000 Flexible budget 0 196,000 14,000 $ 14.00
Material & Supplies Units $ 22.00 0 72,600 Flexible budget 0 72,600 14,000 $ 22.00
Line Supervision Units $ 3.00 110,000 119,900 Flexible budget 110,000 9,900 3,300 $ 3.00
Deprecation N/A $ - 0 250,000 250,000 Flexible budget 250,000 0 N/A N/A
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
Admin. N/A $ - 0 120,000 120,000 Flexible budget 120,000 0 N/A N/A
Total: 580,000 906,700 580,000 326,700
Sum F/V 906,700
Operating Income 230,600
ClassCo Manufacturing
Actual Actual
Units 3345 Hours 14,000
Units 3,300 made
Sales 1,145,300
Expense
Direct labor 204,000
Material & Supplies 69,000
Line Supervision 131,000
Deprecation 248,500
Rework & repair 47,000
Testing 95,000
Admin. 128,000
5c Total 922,500
Operating Income 222,800
STATIC v. FLEX Budget Non-Con. Volume 5d Controllable Performance
For the Period Ended June 30 F/(Unfav) from above F/(Unfav) Budget
Multiple Drivers Planning Activity Flexible Spending to Actual
Budget or Volume Budget Actual Variance
Variance Variance
DL Hrs 12,000 14,000 14,000
Units 3,000 3,300 3,300
Sales 1,020,000 117,300 1,137,300 8,000 1,145,300 125,300 0
Expense
Direct labor 168,000 (28,000) 196,000 (8,000) 204,000 (36,000) 0
Material & Supplies 66,000 (6,600) 72,600 3,600 69,000 (3,000) 0
Line Supervision 119,000 (900) 119,900 (11,100) 131,000 (12,000) 0
Deprecation 250,000 0 250,000 1,500 248,500 1,500 0
Rework & repair 50,000 (5,000) 55,000 8,000 47,000 3,000 0
Testing 92,000 (1,200) 93,200 (1,800) 95,000 (3,000) 0
Admin. 120,000 0 120,000 (8,000) 128,000 (8,000) 0
Total 865,000 (41,700) 906,700 (15,800) 922,500 (57,500) 0
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

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 42471 60060
a77 Metal frame unit 1 0.50% 1.005 1.005 $ 11.00 $ 11.06 $ 11.055 45191 14600
l22 Laminate cover sq.' 10 2% 10.200 10.200 $ 0.75 $ 7.65 $ 7.650 1212 3500
s44 side trim linear ft. 9.2 4% 9.568 9.568 $ 0.22 $ 2.10 $ 2.105 2952 6700
t51 top cover sq.' 10 1% 10.100 10.100 $ 4.25 $ 42.93 $ 42.925 4634 84860
LL2 Leg assemblies unit 4 0 4 909
M98 Metal tubing linear ft. 3 6% 3.180 12.720 $ 1.89 $ 6.01 $ 24.041 3024
FF8 end tabs unit 1 0.40% 1.004 4.016 $ 0.04 $ 0.04 $ 0.161 4403
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 Labor
For simplicity 1-step assembly - may be many steps per ass'y Time Std. Period Prod.% Std. Std. Std. Std.
Qty per UM Qty PFD Time Productivity for Std. Minutes Price Cost ea. Cost ea.
4 LL2 Leg assemblies Minutes 6.0 12% 6.8181818182 89% 93% 7.331 $ 12.00 $ 1.466 $ 5.865 4 per table
1 AA2 Top Assembly Minutes 11.5 12% 13.068 92% 94% 13.9023210832 $ 14.75 $ 3.418 $ 3.418 1 per table
Can
6.0 89% Use +G46/(1-H46) Total $ 9.283 Cost
This 6 / (1 - 12%)
Variable OH 4 LL2 7.331 29.326
1 AA2 13.902 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.
Production and Machine-Hour Data
Budgeted production 30,000 units
Standard machine-hours per unit 3.00 hours
Budgeted machine-hours 90,000 hours
Actual production 28,000 units each 3.00
Standard machine-hours allowed for the actual production 84,000 hours act @ std Q made 28,000
Actual machine-hours 88,000 hours
Cost / Spending Data
BUDGET: Rate per machine hour
Budgeted variable manufacturing overhead $ 90,000 $ 1.000 Std. 90000 X $ 1.000
Budgeted fixed manufacturing overhead 270,000 $ 3.000 Std. $ 270,000 / 90,000
Total budgeted manufacturing overhead $ 360,000 $ 4.000 Std. $ 1.000 + $ 3.000
ACTUAL: Rate per Actual hour
Actual variable manufacturing overhead given $ 100,000 $ 1.136 $ 100,000 / 88,000
Actual fixed manufacturing overhead given 280,000 $ 3.182 $ 280,000 / 88,000
Total actual manufacturing overhead $ 380,000 $ 4.318
FLEX budget for Volume
Units 88,000
Variable OH $ 88,000 $ 1.000 Budget rate
Fixed OH $ 270,000 fixed 264000
Total $ 358,000
Applied or Standard or Absorbed overhead
Units 84,000 std hrs for act. Qty.
Variable OH $ 84,000 $ 1.000
Fixed OH $ 252,000 $ 3.000
Total $ 336,000 $ 4.000 16016
Excel 4
Budget vs. Actual
Managerial Accounting: Variable Fixed Total
Plan $ 90,000 $ 270,000 $ 360,000
FLEX $ 88,000 $ 270,000 $ 358,000
Actual $ 100,000 $ 280,000 $ 380,000
Fav/[Unfav] Volume $ 2,000 $ - 0 $ 2,000 Fav spend less
Fav/[Unfav] Spending $ (12,000) $ (10,000) $ (22,000) 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 $ 84,000 $ 252,000 $ 336,000 84,000 Fav/(Unfav) 88,000 84,000 $ 2,000 volume
Rate variance $ (12,000) $ (12,000) (0.136) ∆ rate. X act.hrs. $ (22,000) 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 $ (18,000) $ (18,000) ∆ Budget or Plan Spending - Actual spdg. OR ∆ Hrs. Budget - std hrs X std.rate
Total/Net variances $ (44,000) BUDGET: ACTUAL:
270,000 280,000
(10,000)
Excel 5 BUDGET: Applied or Standard or Absorbed overhead
Doing the Accounting with Standard Costs 90,000 84,000 (6,000)
Only standard material costs enter inventory $ 3.000 std fxd rate
Purchase price variances are removed at receipt (18,000)
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
Only std. labor & OH are input to inventory
variances are removed at each stage of production
Materials Received DR CR DR CR
material purchased at std. value Matl. Inventory 500
material purchased at actual cost A/P 525
Difference std - to actual variance acctg in CoGS 25
if Act > std If std > act unfav.var.
Materials Used DR CR DR CR
Materials into WIP @ std. WIP 615
Materials into WIP @ std. Matl. Inventory 615
Std. matl in Production Completed FG 600
Matl. @ std. used in Production Completed WIP 615
Difference std - to actual variance acctg in CoGS 15
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
Difference std - to actual FAV variance acctg in CoGS FAV
if Act > std Unfav If std > act: FAV
Production Completed FG 402
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. & $335K credit
a $44K un fav Variance

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

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.

Ch.13 CapX

Chapter 13 Capital Budgeting Excel 1
Cost $ 3,170 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 4 $ 1,000 $ 683
$ (0) $ (0)
initial [0] 1 2 3 4
Buy Machine (3,170)
Cash inflow 1,000 1,000 1,000 1,000
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
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)
Cost of Capital PE on
Excel 2 Additional Future
$billion Interst rate PE now earnings
Debt 50 8.0% 0.25 2.0%
Market cap 150 18 14.5 0.75 5.2%
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
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. 270,000 133,300 Profitability
Tax Rate = 40% 79,980 index
$ 260,000 Initial investment
Hurdle rate: 10% $ 85,844 PV
If WC now By hand 33.0%
Period Equipment WC Profit Net Cash Flow PV by Year
0 $ (160,000) $ (100,000) $ (260,000) $ (260,000)
1 $ 79,980 $ 79,980 $ 72,709 =+E47/((1+F$43)^A47)
2 $ 79,980 $ 79,980 $ 66,099
3 $ (30,000) $ 79,980 $ 49,980 $ 37,551 $ 85,844
4 $ 79,980 $ 79,980 $ 54,627 20.6%
5 $ 5,000 $ 100,000 $ 79,980 $ 184,980 $ 114,858 $ 85,844
NPV $ 85,844 +E46+NPV(F43,E47:E51)
IRR 20.6% +IRR(E46:E51,0.1)
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 10.4% $ 0 Back to PPT 21
Back to PPT 21
Cash flow per year Inflow Working Net 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
$ 0 Back to PPT 21
NPV @ Hurdle Rate $ 28,156 18.6% $ 150,000 $ 28,156 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 ;=+IRR(E85:E95,0.2)
2 $ 20,000 15,389 =+E87/(1+$E$96)^D87 14.0%
3 $ 20,000 13,499 =+E88/(1+$E$96)^D88
4 $ 20,000 11,841 =+E89/(1+$E$96)^D89
5 $ 20,000 10,387 =+E90/(1+$E$96)^D90
6 $ 20,000 9,111 =+E91/(1+$E$96)^D91
7 $ 20,000 7,992 =+E92/(1+$E$96)^D92
8 $ 20,000 7,011 =+E93/(1+$E$96)^D93
9 $ 20,000 6,150 =+E94/(1+$E$96)^D94
EXCEL "IRR" function 10 $ 20,000 5,395 =+E95/(1+$E$96)^D95
=+IRR(E85:E95,.22) 14.0% 0
Quick Check Excel 6
Year Proof by hand
0 $ (79,310) -79310
1 $ 22,000 19643
2 $ 22,000 17539
3 $ 22,000 15660
4 $ 22,000 13983
5 $ 22,000 12485
IRR 12.0% - 0
+IRR(F100:F105,0.15)
CAR
WASH
Excel 7 IRR problem
NOT NPV problem
A !0% not used
(300,000) New
(175,000) OLD
(125,000) Difference
B 40,000 OLD
(85,000) NET difference
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 ◄Answer► 15,000 11,270 =+H131/(1+B$126)^B131
$ 175,000 4 45,000 60,000 15,000 10,245 =+H132/(1+B$126)^B132
$ 56,348 5 45,000 60,000 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 15,000 7,697 =+H135/(1+B$126)^B135
NEW 8 45,000 60,000 15,000 6,998 =+H136/(1+B$126)^B136
Profitability 9 45,000 60,000 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
$ 260,000 =+IRR(C128:C138,0.15) 17.6% 17.2% 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 31.5% Nominal $
+56348/175000 +83149/260000 56,348 =+C128+NPV(B126,C129:C138)
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
5 $ 30,000 $ 24,000 $ 6,000 $ 6,000 $ 3,116 =+F163/(1+$B$157)^B163
IRR 10.9% 13.4% (5,229)
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)
BAY
Excel 10
Rate 14% $34,320
Needed return $34,320
+PMT(F197,A207,D203)
+pmt(rate, nper,pv] $34,320
rate = 14%, Nper=4, pv = ($100K)
answer = "c."
PV$ PV$
Year Tangible Intangible Total PV$ Tangible Intangible
0 $ (100,000) $ - 0 $ (100,000) $ (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
Proof $ (60,000) $ 97,282 14.0% IRR $ 100,000 $ 29,137 $ 70,863
$0.00 NPV
TANKER Excel 11
Pv of project End salvage value = $1040,000
Negative PV without salvage $ 1,040,000
20 Years
12% hurdle rate
PV x (1 + rate)^years $ 10,032,145 1.12 to the 20th power x shiortage
Future value of $ 1,040,000 after 20 years
+G214*(1+G216)^G215
Excel 12 Daily Grind Discounted
Cash flows ∑ Non-Disc.cash flow Discounted cash flow ∑ discounted cash flow Discount rate 14%
0 $ (140,000) $ - 0 $ (140,000) $ - 0
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) $ - 0
5 $ 35,000 $ 35,000 $ 18,178 $ (19,842) $ 35,000
6 $ 35,000 $ 70,000 $ 15,946 $ (3,897) - 0
7 $ 35,000 $ 105,000 $ 13,987 $ 10,091
8 $ 35,000 $ 140,000 $ 12,270 $ 22,360 $ (3,897)
9 $ 35,000 $ 175,000 $ 10,763 $ 33,123 $ 13,987
10 $ 35,000 $ 210,000 $ 9,441 $ 42,564 0.28
4.00 Years 6.28
Excel 13 Discounted
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)
4 $ 1,800 $ 1,000 $ 1,066 $ (572)
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) $ (572) =+PV(14%,5,100)
$ 779 ($343.31)
0.73
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
60,000 ERROR:#REF!
60,000 ERROR:#REF! =+PV(B355,A360,B356)
60,000 ERROR:#REF! ERROR:#REF!
60,000 ERROR:#REF!
60,000 ERROR:#REF!
ERROR:#REF!
14% by hand
ERROR:#REF!
(100) ERROR:#REF! =+PV(B355,A360,B356)
(100) ERROR:#REF! 343.31
(100) (67.50)
(100) (59.21)
(100) (51.94)
ERROR:#REF!

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

•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.

How large would the salvage value need to be ?

Should Holland open a mine on the property?

If the interest rate is 14%, how much would you have to put in the bank today so as to be able to withdraw $100 at the end of each of the next five years? a. $34.33 b. $500.00 c. $343.30 d. $360.50

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

taxes

Ch.12

No info

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

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 sheet 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 sheet 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 Inv. 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/Inventoryèè Variable Costing FAC costing Costing Method for Inc.Statement/Inventoryèè Variable Costing FAC costing Costing Method for Inc.Statement/Inventoryèè 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 MOHé Difference Fixed MOHê
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 aboveéééé 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 V*A*R*I*A*B*L*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%

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

2

3

6

1

7

5

4

1

6

8

4

2

3

5

7

9

11

10

cell ref.

increase by 10000 using formula

text box ▼

8

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

Actual data

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

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 10932.38833071419 11466.99708102186 12169.839354153622 13040.915150109477 15530.77128790604 20469.359813475501 22604.056291976758 21990.938564351178 19598.284017519643 16203.705379202409 10169.729693911639 11624.01503565768

Actual data

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

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:

#3

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:

#4

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
&A
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
&A
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

2xx0

Base

2xx52xx42xx12xx22xx3

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
&A
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
&A
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 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
&A
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

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
&A
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

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
&A
Page &P

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
&A
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
&A
Page &P

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

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
&A
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%
&A
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
&A
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

McGraw-Hill/Irwin

Slide *

Assigning ABC measured Overhead to Customers

Design change by customer - unlikely

A

B

C

D

*

The total overhead cost of $12,916 assigned to Acme Auto Parts is calculated as shown.

Ch.7 PPT Additions 3/1/2017

Sheet1

Overhead Cost for Acme Auto Parts
(a) (b) (a) × (b)
Activity Cost Pools Activity Rate Activity ABC Cost
Customer orders $ 452.00 12 $ 5,424
Design changes 760.00 4 3,040
Order size/Machibe Hrs. 6.50 448 2,912
Customer relations 1,540.00 1 1,540
Total $ 12,916

Sheet2

Sheet3

McGraw-Hill/Irwin

Slide *

 Prepare Management Reports:
Customer Margin

Customer Margin Analysis
The first step in computing Acme Auto Parts’ customer margin is to gather its sales and direct cost data.

Traceable

given here

NOT in ABC pools

through Cost System

NOT

In

ABC

Pools

*

The first step in computing Acme Auto Parts’ customer margin is to gather its sales and direct cost data which are assumed to be as shown.

Ch.7 PPT Additions 3/1/2017

Sheet1

Acme Auto
Parts
Sales $ 29,200
Direct costs
Direct material 7,500
Direct labor 6,700
Shipping 1,700

Sheet2

Sheet3

McGraw-Hill/Irwin

Slide *

 Prepare Management Reports// Data Reminder

A

B

C

D

*

The first step in computing Acme Auto Parts’ customer margin is to gather its sales and direct cost data which are assumed to be as shown.

Ch.7 PPT Additions 3/1/2017

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 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

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
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
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
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
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
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
S Fringe benefits for Admin. $ 200.00 $ 200 $ 200
T Process utilitiy cost $ 400.00 $ 400 $ 400
U Solder & solvents $ 200.00 $ 200 $ 200
V Derperciation factory Bldg. & eqpmnt. $ 1,860.00 $ 1,860 $ 1,860
W Variable Administrative expenses 1% of sales $s $ 990 $ 990
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 $ 55,800 $ 61,425
Variable Selling Expenses $ 4,455 $ 1,575
Selling & Administrative Expense Variable Admin. Expenses $ 990 $ 2,650
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 Regression
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
A8 2310 $ 10,113 $ 10,568
A9 2453 $ 12,691 $ 11,085 Difference:Min [Lo] - Max {Hi]
A10 2641 $ 10,905 $ 11,765 Units $
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
A17 3720 $ 18,383 $ 15,668 Y = 3.617X + 2212.598
A18 2106 $ 9,830 $ 9,830
A19 2495 $ 11,081 $ 11,237 after you have computed "b" then compute "a'
Varible-bX
Min 2106 $ 9,830 $ 7,617.40 $ 2,212.60 fixed = a
Max 5432 $ 21,860 $ 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---&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
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 Applied 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 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.] Memo $10,000 $1,500 % 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 applied
Dr. Inventory= Under applied [inventory too low, profit too low] 87% 13% 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 $4,163 ←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)

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)

1

3

1

1

4

2

Ch. 4 process Board e.g.

Board Example
Weighted Average
Ch. 4 Process Costing Equivalent
$s Qty % Units
Beginning $ 22,000 6,000 75% 4,500
Started in Period $ 50,000 10,000
Completed in period 11,000 100% 11,000
Ending 5,000 60% 3,000
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 & completed 11000-6000= 5,000 100% 5,000 11000 completed
5000from started
Ending 5,000 60% 3,000
Equivalent units done for period costsèè 9,500
Cost Each $ 5.26
Ending inventory $ 15,780
5.26 x 3000
Sheet Income
Balance Statement
Account Title Accounts Accounts
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: manifacturing spending [Cr.]
Applied overhead Acct. [@actual OR @ POHR] CoGS: manifacturing spending [Dr.]
WIP is credited

Handout

Ch. 4 slides 40-50

Ch.4 Process cost
Weighted Average Inventory Valuation Method (FIFO Average) 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 $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 $378,600 5000 $350,900 $ 729,500 Total costs to be accounted $744,675
Completed 4800 100% 4800 4800 100% 4800
Ending 400 40% 160 400 25% 100
Cost accounted for as follows:
Equivalent Production $388,200 4960 $356,475 4900 Cost of units transferred out $ 724,877
Ending WIP Inventory $19,798
Total $ for Wghtd. Avgr. inventory valuation $378,200 $356,475 $ 734,675 Cost of ending Work in Process Inventory $19,798
Per unit $78.27 $72.75 $ 744,675 Ending WIP Inventory $ 19,798
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
$388,200 4960 $356,475 4900 $ 744,675
0.00
FIFO: Appendix A
Department: SMD Materials Conversion = DL + Variable Overhead Total $ F I F O
Units $ % complete Equiv. Units Units $ % complete Equiv. Units
Beginning 200 $9,600 55% 110 200 $5,575 30% 60 $ 15,175
Completion of beginning units 45% 90 70% 140
Started 5000 $378,600 5000 $350,900 $ 719,500
Completed 4800 100% 4800 100% 4800
Started & completed this period 4600 100% 4600 4600 100% 4600
Ending 400 40% 160 400 25% 100
Equivalent Production $378,600 4850 Work done in the period only 4840
Total $ for FIFO $378,600 $350,900 $ 719,500
Per unit $78.06 $72.50 $ 150.56
To next department 4800 $376,040 100% 4800 4800 $349,225 100% 4800 $ 725,265
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
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

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.4 Cost alloc NO

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
Data Set: #3
Support Departments Operating Departments
Maintenance IT Support Machining Assembly Total:
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 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%
$ 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
Allocated support costs Maintenance IT Support
aj Machining 225,000 103,111 + ac opera * ah , ai
ak Assembly 375,000 12,889 + ac mach * ah , ai
al Total 600,000 116,000
Direct Fixed OH costs Direct Allocated Total Rate
az +ab + aj Machining 400,000 328,111 728,111 $ 303.38
ax +ab + ak Assembly 200,000 387,889 587,889 $ 146.97
aw + az + ax Total 600,000 716,000 1,316,000
Step Down Method of Overhead Allocation
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
$ (120,000)
ae IT base = Computer Hours 200 1600 200 2,000 $ 480,000 M to Prodn
af % 10.0% 80.0% 10.0% 100.0%
ab Functional Spending $s $ 600,000 $ 116,000 $ 400,000 $ 200,000 $ 1,316,000
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.%
af From IT to Opera. Depts. $ 209,778 $ 26,222 $ 236,000 + af * ad IT
ag Total: $ 789,778 $ 526,222 $ 1,316,000 + af + ag
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 $ 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.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
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
Operating Income [above] $20,000 / Op. Inc. $20,000
Leverage Ratio 5.00 CM$ / Operating Income Ratio 5.00
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
j Variable costs & Expense $300 $ 150,000
k Contribution margin $200 $ 100,000 +$200/$500=40% CM% Contrib ratio $s
l Fixed expenses $80,000 $100,000/$250,000=40%
m Net income [Operating Income] $20,000
D
Using CM% Using CMu
Fixed costs & expenses $80,000 $180,000
+Target Profit $100,000 CMu $200.00
Sunm to be covered by Sales $180,000 Qty 900
P $500.00
+CM% 40.0% $450,000
Target Sales $450,000 Target Sales
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

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
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
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
Profit [contribution format IS] at What if #1 Qty.
540 per unit $s %
units Sales $500 $ 270,000 [was $250K] 100.0% i / i 500 40 Qty
Variable costs & Expense $300 $ 162,000 60.0% j / i
Contribution margin $200 $ 108,000 40.0% k / i CM%
Fixed expenses $90,000 [was 80,000] 33.3% l / i $80,000 $10,000 Fxd. Exp
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
q Net Change profit Incr/(Decr) $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.
per unit $s %
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%
Fixed expenses $80,000 27.6%
s Net income [Operating Income] $30,200 10.4%
80 units Net change Var.cost/unit $10
t Net Change profit Incr/(Decr) $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 %
Sales $480 $ 312,000 [was $500] 100.0% 500 150 Qty
Variable costs & Expense $300 $ 195,000 62.5% $500 ($20) SP unit
Contribution margin $180 $ 117,000 37.5% CM%
Fixed expenses $95,000 [was $80,000] 30.4% $80,000 $15,000 Fxd Exp
v Net income [Operating Income] $22,000 7.1%
150 units Net change Sp down Adv up[ 650 X $20
w Net Change profit Incr/(Decr) 150 X $200 $30,000 $2,000 ($13,000) ($15,000) Adv. Up
r X c1 [r qty+ g] X r ∆SP Net change from the Base Case
What IF
C4
What IF #4 Qty Commissions∆ Fxd Exp
x Sales up 75 units Comm.unité $15 Fxd Expê $6,000
Profit [contribution format IS] at What if #3 Qty.
per unit $s %
Sales $500 $ 287,500 100.0% 500 75 Qty
Variable costs & Expense $315 $ 181,125 [was $300] 63.0% $300 $15 Var.cost-Exp
Contribution margin $185 $ 106,375 37.0% CM%
Fixed expenses $74,000 [was $80K] 25.7% $80,000 ($6,000) Fxd
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 $80,000 BE units 400
CM$/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
SP unit $500 To have a profit of $ 100,000
Var.cost per unit $300 Total Fxd $80,000
CM$/unit $200 Sum $ 180,000
CM% 40.0%
CM$/unit $200
Target Units 900 $180000 / $200
Manufacturing $50,000 @SP/unit $450,000 Target revenue
S&A $30,000
Total Fxd $80,000 OR CM% 40.0% $180,000 / 40%
$ 450,000 Target revenue
Sales Budget [Base] 500 Base case 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

ACC220---HCT---Ch.5 CVP---&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 $332,500 $s
Variable cost per Unit 800 Units
Direct Materials $ 200.00 $ 125.00 $ 171.88 Weighted average $ 415.63 average
Variable LOH $ 75.00 $ 60.00 $ 69.38 Weighted average
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 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%
Fixed Costs & Expenses $ 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
Breakeven
Fixed Costs & Expenses $ 80,000 $ 20,000 $ 100,000 using Mix % x BE sales $ $100,000
CM% 40.0% 27.3% 36.8% CM% 75.2% 24.8% 36.8%
Breakeven $204,082 $67,347 $271,429 Method $271,429 $271,429 $ 271,429
BE $-Mix 75.2% 24.8% 100% $ 204,082 $ 67,347
Bikes Carts
Breakeven 81,633 18,367 100,000
Fixed Costs & Expenses $ 80,000 $ 20,000 $ 100,000 using 40.0% 27.3% CM %
CM$ per unit $ 200.00 $ 75.00 $ 153.13 Units
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%

1

2

3

1

3

2

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
total Direct to Products
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
General Administrative Department 9 expense categories to be allocated
Administrative wages and salaries 4,000,000
Office equipment depreciation 900,000
Administrative building lease 1,100,000 6,000,000
Marketing Department
Marketing wages and salaries 1,500,000
Selling expenses 500,000 2,000,000
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* Other Not allocated Total Product of %s above X Total Amounts for department
Production Department 30% X $6000,000
Indirect factory wages 1,800,000 1,800,000 1,200,000 600,000 600,000 6,000,000 Manufacturing overhead
Factory equipment depreciation 700,000 350,000 2,100,000 - 0 350,000 3,500,000 14,000,000
Factory utilities - 0 250,000 1,500,000 - 0 750,000 2,500,000 3,700,000 unassigned ABC
Factory building lease - 0 - 0 - 0 - 0 2,000,000 2,000,000 26.4%
General Administrative Department - 0 - 0 - 0 - 0 - 0
Administrative wages and salaries 1,200,000 400,000 400,000 1,200,000 800,000 4,000,000 General Administrative Department
Office equipment depreciation 270,000 90,000 - 0 180,000 360,000 900,000 6,000,000 37.7%
Administrative building lease - 0 - 0 - 0 - 0 1,100,000 1,100,000 2,260,000 unassigned ABC
Marketing Department
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 4,520,000 3,040,000 5,200,000 3,080,000 6,160,000 22,000,000
Given dataè
Activity Level [3] Money is in the pool 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 Hrs. Units Extd. Hrs.
$Amt. per Activity unit [3] $ 452.00 $ 760.00 $ 6.50 $ 1,540.00 N/A 0.8 400000 320000
Denominator - Qty. of the pool activity = Z 0.6 800000 480000 800000
Summary
Allocation ABC Direct or otherwise traced
Direct materials 15,000,000
Direct labor 12,000,000
Manufacturing overhead 14,000,000
Shipping expenses 3,000,000
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
Not traced to ABC object (6,160,000)
To ABC Objects 15,840,000 15,840,000 30.5% in ABC pools
------Product Lines------
Pools $ in Pool Activity Measure Qty of Act. Measure Rate Sure Starts [A] Long Lifes [B] Total
Customer Orders 4,520,000 Customer Orders 10,000 $ 452.00 4,000 6,000 10,000
Design changes 3,040,000 Design changes 4,000 $ 760.00 - 0 4,000 4,000
Order Size 5,200,000 Machine Hours 800,000 $ 6.50 480,000 320,000 800,000
Customer Relations 3,080,000 Number of Customers 2,000 $ 1,540.00 Measured Actual Measured Actual From date set given
15,840,000
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
Total Measured Actual $ 4,928,000 31.1%
5,200,000
[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
Design changes 760.00 4,000 3,040,000 $ 12,760,000
Order size {object is Product} 6.50 320,000 2,080,000 15,840,000 total to objects
Total Measured Actual $ 7,832,000 49.4% 3,080,000 to objects not to products
$ 12,760,000 80.6% total ABC to Products
Each Assignable costs $ 3,080,000 to customers
$ 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
$ 6.50 Order Size 5,200,000
SUM 12,760,000 12,760,000
Cust. basis-Not assignable to Prod.A or B 3,080,000 Product A 480,000 Mach.Hrs.
Product B 320,000 Mach.Hrs.
Rate = $ 6.50
ABC P&L Sure Starts [A] Long Lifes [B] Total From: Excel C
Sales 31,300,000 18,700,000 50,000,000
Direct costs
Direct material 9,000,000 6,000,000 15,000,000 Cost system data from cost system
Direct labor 7,000,000 5,000,000 12,000,000 Cost system data from cost system
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
Subtotal 18,000,000 12,000,000 30,000,000 Given dataÚ
Contrib $s 13,300,000 6,700,000 20,000,000
Contrib % 42% 36% 40%
Activity Pool Costs -Product Related: ABC Assigned
Order Size-Machine Hours 3,120,000 2,080,000 5,200,000
Customer Orders 1,808,000 2,712,000 4,520,000 ABC
Design changes - 0 3,040,000 3,040,000 ABC
Subtotal 4,928,000 7,832,000 12,760,000 ABC
ABC Traceable/Assigned Expenses/Costs
27% -6% 14%
Product Margin ******** 8,372,000 (1,132,000) 7,240,000 ********
ABC Unassigned to Product Lines 6,160,000 Unallocated 9,240,000 not in a pool
*** ABC # of Customers 'Customer common to both A & B 3,080,000 ABC/Product in a poll 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 Sure Starts [A] Long Lifes [B] Total From:
Sales 31,300,000 18,700,000 50,000,000
Cost of Goods Sold [no ∆ in inventory] No change in inventory
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 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.
Selling and administrative expenses 11,000,000 all non-manufacturing expenses
Operating Income [Loss] (2,000,000)
Variable/Contribution Sure Starts [A] Long Lifes [B] Total From:
Sales 31,300,000 18,700,000 50,000,000
No change in inventory
Variable costs & expenses
Direct material 9,000,000 6,000,000 15,000,000 Cost system Same as GAAP/ABC
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 $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 $1,700 +
Variable Sell/Admin 8% of sales 2,504,000 1,496,000 4,000,000 8% is a Given % $15,900 =
Total Variable Costs & expenses 24,284,000 16,016,000 40,300,000
Contribution Margin 7,016,000 2,684,000 9,700,000
22.4% 14.4% 19.4% 22,000,000 Total overhead costs for allocation
Fixed (6,300,000) Manufacturing: 45% variable
Manufacturing 7,700,000 (4,000,000) Variable Sell/Admin 8% of sales
General administrative expenses 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 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%
GAAP/Traditional 22.0% 11.2% 18.0%
Variable/Contribution 22.4% 14.4% 19.4%
% of Total
ABC P&L 115.6% -15.6% 100.0%
GAAP/Traditional 76.7% 23.3% 100.0%
Variable/Contribution 72.3% 27.7% 100.0%
back 42

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

an objection to ABC is forcing a distribution

an objection to ABC is treating fixed as variable

Given data

Given data

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 #2 Purchase of PPE = $ 125,000 Data given
Sale of PPE:NBV = $12000, Cost $24000, sold $14000) Purchase of Intangibles = $ 95,000 Data given Cost $ 85,000
Other comprehensive income in equity increased by $12000, offset in Other current assets $ 12,000 Sales of PPE = $ 43,000 Gain = $ 6,000 Data given AD $ 48,000
Used Treasury Stock of $50,000 to buy PPE $ 50,000 Cost = $ 85,000 Data given BV $ 37,000
Sold common stock of $ 125,000 New Debt = $ 470,000 Sale $ 43,000
Paid dividend of $ 23,000 No Dividends
Affect on Class Company, Inc.
Class Company, Inc. Category Cash Balance Sheet as of
Balance Sheet as of Increase Increase 12/31/11 12/31/12 Cash
Assets: 12/31/11 12/31/12 (Decrease) (Decrease) Assets: Increase Increase
Current Assets: $s $s Current Assets: $s $s (Decrease) (Decrease)
Cash 150,000 340,000 190,000 (190,000) Cash 200,000 952,110 752,110 752,110
Accounts Receivable 355,000 418,000 63,000 (63,000) Accounts Receivable 385,100 438,000 52,900 (52,900)
Prepaid Expenses 27,000 19,000 (8,000) 8,000 Prepaid Expenses 33,000 29,000 (4,000) 4,000
Other Current Assets 15,000 11,000 (4,000) 4,000 Other Current Assets 22,000 7,000 (15,000) 15,000
Total Current Assets: 547,000 788,000 241,000 (241,000) Total Current Assets: 640,100 1,426,110
Plant Property & Equipment 954,000 1,127,000 173,000 (173,000) 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:
Intangibles 375,000 350,000 (25,000) 25,000 P&L item Intangibles 500,000 480,000 (20,000) 20,000 P&L item
Deferred Loan Placement Costs 25,000 25,000 0 0 P&L item Deferred Loan Placement Costs 30,000 30,000 0 0 P&L item
Other Non-Current assets 15,000 14,000 (1,000) 1,000 Other Non-Current assets 41,000 37,000 (4,000) 4,000
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 1,859,000 275,000 (275,000) 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
Accounts Payable 129,000 139,000 10,000 10,000 Accounts Payable 720,000 760,000 40,000 40,000
Accrued Expenses 51,000 64,000 13,000 13,000 Accrued Expenses 50,000 40,000 (10,000) (10,000)
Current Portion of LT debt 31,000 63,000 32,000 32,000 Other Current Liabilities 23,000 11,000 (12,000) (12,000)
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 Long Term Debt 1,100,000 915,000 (185,000) (185,000)
Long Term Debt 1,100,000 915,000 (185,000) (185,000) Deferred Income Taxes 55,000 71,000 16,000 16,000
Deferred Income Taxes 83,000 99,000 16,000 16,000 P&L item Other Non-current Liabilities 3,000 5,000 2,000 2,000 P&L item
Other Non-current Liabilities 14,000 12,000 (2,000) (2,000) Total Non-Current Liabilities 1,158,000 991,000
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 Common Stock @ par = $0.01 100 110 10 10
Common Stock @ par = $0.01 100 225 125 125 Additional Paid-in Capital 700,000 805,000 105,000 105,000
Additional Paid-in Capital 99,900 224,775 124,875 124,875 Retained Earnings 400,000 1,056,000 656,000 656,000
Treasury Stock 65,000 15,000 (50,000) 50,000 Total Owners' Equity 1,100,100 1,861,110
Dividends paid [before closing entries] 0 23,000 23,000 (23,000)
Other comprehensive income 0 $ 12,000 12,000 12,000 Total Liabilities and Owners Equity 3,311,100 3,953,110
Retained Earnings 118,000 357,000 239,000 239,000 Before
Total Owners' Equity 153,000 556,000 403,000 403,000 Dividends
acct. 0 0
Total Liabilities and Owners Equity 1,584,000 1,859,000 275,000 275,000 closed @ YE
Note: in this example we have Intangibles - which is also a non-cash charge to income
0 0 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 Income
Period Ending 12/31/2012
Class Company, Inc. $s $s
Statement of Income Revenue 7,000,000 100.0%
Period Ending 12/31/2012
$s $s Cost of Goods Sold 4,500,000 64.3%
Revenue 3,600,000 100.0%
Gross Profit 2,500,000 35.7%
Cost of Goods Sold 2,113,000 58.7%
Operating Expenses: 1,500,000 21.4%
Gross Profit 1,487,000 41.3% Operating Income 1,000,000 14.3%
Operating Expenses: Other Income/Gain 6,000 0.1%
Wage Expense 721,000 20.0%
Advertising & Marketing Expense 78,000 2.2% Provision for Income Taxes 505,000 7.2%
Vehicle Expenses 22,000 0.6%
Insurance and Other 48,000 1.3% Operating Income 1,000,000 14.3%
Depreciation 125,000 3.5%
Write-off of Goodwill 25,000 0.7% Other Income 6,000 0.1%
Total Operating Expenses 1,019,000 28.3% Taxes 350,000 5.0%
Operating Income 468,000 13.0% Net Income 656,000 9.4%
Other Income ( 2,000 0.1% Class Company, Inc.
Statement of Cash Flows for Period Ending 12/31/2012
Income Before Taxes 470,000 13.1% $s
Cash Flows From Operating Activities:
Provision for Income Taxes 231,000 6.4% Net Income 656,000 ∆ C - AD $ 43,000
Plus: Depreciation 208,000 $ 160,000 $ 48,000 $ (6,000)
Net Income 239,000 6.6% Plus: Amortization Expense 115,000 $ 20,000 $ 95,000 $ 37,000
Changes in Current Assets and Liabilities ∆ Purchase [data] BV
(Increase) Accounts Receivable (52,900)
Decrease Prepaid Expenses 4,000
Decrease Other Current Assets 15,000
Class Company, Inc. Increase Accounts Payable 40,000
Statement of Cash Flows for Period Ending 12/31/2012 Increase Accrued Expenses (10,000)
(Decrease) Other Current Liabilities (12,000)
$s Other Changes
Cash Flows From Operating Activities: Less: Gain om Sale of PPE (6,000)
Net Income 239,000 Increase in Deferred Taxes 16,000 defrred tax Non-current are Operating
Plus: Depreciation Expense 125,000 113,000 12,000 Decrease in Non-current Liabilities 2,000 Given: Financing unless otherwise indicated
Plus: Amortization Expense 25,000
Less: Gain on Sale of PPE (2,000) Total Change in Cash from Operating Activities 975,100
Changes in Current Assets and Liabilities
(Increase) Accounts Receivable (63,000) Cash From Investing Activities
Decrease Prepaid Expenses 8,000 Sale of PPE 43,000 from data set
Increase Other Current Assets 16,000 Capital Expenditures: PPE (125,000) (40,000) (85,000)
Increase Accounts Payable 10,000 Purchase of Intangibles (95,000) ∆ cost sold
Increase Accrued Expenses 13,000 Other Non-Current assets 4,000
(Decrease) Other Current Liabilities (12,000) Total Cash Flows from Investing Activities (173,000)
Other Changes Cash Flows from Financing Activities Dividends would be here as cash down
Increase in Deferred Taxes 16,000 Sale of Stock:Increase in Invested Capital 105,010
Decrease in OtherNon-current Liabilities (2,000) a given acct. detail not avail to student New Debt 470,000 Current Non-current
Total Change in Cash from Operating Activities 373,000 Repayment of Debt (625,000) (470,000) 30,000 (185,000) (155,000)
Total Cash Flows from Financing Activities (49,990) New Debt (-)
Cash From Investing Activities
Capital Expenditures (197,000) (173,000) (24,000) Net Change in Cash Position 752,110 0 Check
Other Non-current Assets 1,000 Opening Cash Balance 200,000
Proceeds from disposal of PPE 14,000 Ending Cash Balance 952,110
Total Cash Flows from Investing Activities (182,000)
Cash Flows from Financing Activities
Repayment of Debt (600,000) (185,000)
Additional borrowing 447,000 31,000 63,000 current 30,000
Sale of Stock 125,000 1,100,000 915,000 non current (470,000)
Use of treasury stock 50,000 1,131,000 978,000 (153,000)
Dividends paid (23,000) down
Total Cash Flows from Financing Activities (1,000)
Net Change in Cash Position 190,000
Opening Cash Balance 150,000
Ending Cash Balance 340,000 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

&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

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

Ch. 15 H and V

Cablevision Comcast Cablevision Comcast Chapter 15
12/31/11 12/31/11 12/31/11 12/31/11
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
12/31/11 12/31/11 12/31/11 12/31/11 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 Analysis 08 - 07 2007
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 12/31/08 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
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
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

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, 2011, 2010, and 2009 [This is #2 data set from Cash Flow] Balance Sheet as of
(in millions, except per share amounts) 12/31/2xx1 12/31/2xx2
2011 2010 2009 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 2011 2010
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) 2011 2010 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 2011 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

Ch.15 FinRatio-Trend

ClassCo TREND
Year
Item 2014 2013 2012 2011 2010
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 2014 2013 2012 2011 2010
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 2014 2013 2012 2011 2010 1.4545454545454546 1.290909090909091 1.1636363636363636 1.0545454545454545 1 Cost of goods sold 2014 2013 2012 2011 2010 1.5 1.3157894736842106 1.1842105263157894 1.0421052631578946 1 Gross margin 2014 2013 2012 2011 2010 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

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

Ch.8

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
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
Budgeted Sales 200,000 500,000 300,000 250,000 150,000 320,000
Period ending cash CASH 30,000
Collections 30,000
70% 175,000 105,000 224,000
25% 62,500 37,500
Sum 205,000 167,500 261,500 634,000
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
Sales + Ending 28,000 21,400 39,200 44,400
Less Beginning (4,000) (3,000) (6,400) (7,200)
= Unit Production 24,000 18,400 32,800 37,200
Cost/Lb Cost/Unit
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
Required for Production - 0 120,000 92,000 164,000 186,000
$s Into FG for Production $ 48,000 $ 36,800 $ 65,600 $ 150,400 Qtr. Total
Budget Ending Inventory 13,000 9,200 16,400 18,600
Sales + Ending 129,200 108,400 182,600
Less Beginning (13,000) (9,200) (16,400)
Qty. Purchase of Raw material 116,200 99,200 166,200 Material budget
$s. Purchase of Raw material $ 46,480 $ 39,680 $ 66,480 Material budget
CASH Ending A/P $ 12,000
Cr. To A/P = purchases $ 46,480 $ 39,680 $ 66,480
Pay 50% current $ 23,240 $ 19,840 $ 33,240
Pay prior $ 12,000 $ 23,240 $ 19,840 Cash budget
Total paid $ 35,240 $ 43,080 $ 53,080 Cash budget $ 131,400 Qtr. Total
Ending A/P [Beginning + Additions - payments] $ 23,240 $ 19,840 $ 33,240
Guaranteed Hours Rate
Payment for quarter 1500 $ 10.00
Required Hrs. per unit 0.05
DL$s. per unit $ 0.50 700
Apr May Jun Qtr sum
= Unit Production 24,000 18,400 32,800 75,200
HRs of Prodctn. at Required per unit of 0.05 1,200 920 1,640 3,760
DL Cost of production at 10 per Hr $ 12,000 $ 9,200 $ 16,400 37,600
unfavorable variance of $ 7,400
Hrs paid 1,500 1,500 1,500 4,500 740 Hours
$s paid $ 15,000 $ 15,000 $ 15,000 45,000
Productivity at budget earned HRs/paid HRs 80% 61% 109%
Variable OH $s per HR $ 20.00 rate is per DL hr.
Required Hrs. per unit 0.05 Hrs. per unit
Variable OH $s per unit $ 1.00
Fxd. MOH per month $50,000
Non cash MOH $20,000
Cash Mfg. OH $30,000
Apr May Jun Qtr. Sum
= Unit Production 24,000 18,400 32,800 75,200 $50,000 $50,000 $50,000
1,200 920 1,640
HRs of Prodctn. at Required per unit of 0.05 1,200 920 1,640 3,760 41.67 54.35 30.49
VOH Cost of production at $20 per DL Hr $ 24,000 $ 18,400 $ 32,800
Fixed manufacturing OH per period $50,000 $50,000 $50,000 $ 150,000
Total MOH per Month $ 74,000 $ 68,400 $ 82,800 $ 225,200
F Mfg. OH rate/hr. $ 41.67 $ 54.35 $ 30.49 59.89
F Mfg. OH unit $ 2.08 $ 2.72 $ 1.52 $ 2.99 0.05 hrs. per unit
F Mfg. OH rate/hr. Quarter averageò Apr May Jun
Budgeted MOH rate per period 61.67 74.35 50.49 59.89 $ 41.67 $ 54.35 $ 30.49 Fxd rate
$ 20.00 $ 20.00 $ 20.00 V. Rate
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 Variable Fixed
0.40 $5.00 Materials $ 2.00
0.05 $10.00 DL $ 0.50 this excludes the unfav. DL variance of $ 7,400
0.05 $20.00 V Mfg. OH $ 1.00 $ 0.098 per unit
0.05 $59.89 F MFG. OH 2.99
Sum $ 3.50 $ 2.99
$ 6.49 average per unit for Qtr
CoGS chart Qty
given
Excel C Beginning Beginning $ 71,500 13,000 Excel B
+ Input addtions
Excel C Materials $ 150,400
Excel D Labor $ 45,000
Excel E Overhead $ 225,200 75,200 Excel B $50,000
Total $ 420,600
Average per FG unit 6.49 Excel E
- Ending (46,762) 7,200 Excel B
= CoGS $ 445,338
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
Non cash portion (10,000) (10,000) (10,000) (30,000)
Cash Period Expense 72,500 67,500 76,000 216,000
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 $ 634,000 Excel A
Cash avaialble $ 674,000
Cash disbursements:
Materials $ 131,400 Excel C
Direct labor $ 45,000 Excel D
Mfg. Overhead $ 165,200 Excel E required without interest $ (8,600)
Selling/Admin. $ 216,000 Excel G Borrowing $ 19,000 assumed day 1 of Qtr. In this example
Equipment Purchased $ 125,000 Given # months 3
Interest $ 285 6% interest $ 285 6%
Total $ 682,885
Excess Cash/(Required) $ (8,885)
Additional borrowing $ 19,000 Management decision [Given]
Ending Cash Balance $ 10,115
Royal Company
Statement of Income
QE: 6/30 GAAP, FAC
Sales 720,000 100.0% Excel A
Less: Cost of Goods Sold $ 445,338 61.9% Excel F
Gross Margin $ 274,662 38.1%
Selling & Admin, Expense 246,000 34.2% Excel G
Operating Income 28,662 4.0%
Interest Expense $ 285 0.0%
Income before taxes $ 28,947 4.0%
Royal Company
Month ending 6/30
Balance Sheet
Assets
Cash $ 10,115 Excel H
Accounts receivable 96,000 Excel A
Inventory 46,762 Excel F
Land 50,000 Given
Equipment 175,000 Given
Statement of Retained Earnings Total assets 367,762
Beginning $ 86,575
less: Dividends 0 Liabilities & Stockholders' Equity
Plus: Income $ 28,947 Accounts Payable $ 33,240 Excel C
Ending Retained Earnings $ 115,522 Long term debt $ 19,000 Excel H
Common stock $ 200,000 Given
Retained Earnings $ 115,522 ççright
Total Liabilities & Stockholders' Equity $ 367,762

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

Excel A Sales Budget

Excel C Materials

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

Ch.9 Flex A

STATIC Budget 1
For the Period Ended June 30
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
Gasoline and supplies 4,500 $ 9 units sold $ 4,500 $ - 0 500 $9
Equipment maintenance 1,500 $ 3 units sold $ 1,500 $ - 0 500 $3
Office and shop utilities 1,000 $ 1,000 $ - 0
Office and shop rent 2,000 $ 2,000 $ - 0
Equipment Depreciation 2,500 $ 2,500 $ - 0
Insurance 1,000 $ 1,000
Total expenses 32,500
Net operating income $ 5,000
ACTUAL 1
For the Period Ended June 30
Actual
Results
Number of units Driver 550 Actual
$ 78.18
Revenue $ 43,000 SP Each
Expenses:
Wages and salaries $ 23,500 given from Financials
Gasoline and supplies 5,100 given from Financials
Equipment maintenance 1,300 given from Financials
Office and shop utilities 950 given from Financials
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 Characteristics
Fixed Variable Basis
Revenue $ 37,500 $ 41,250 $ - 0 $ 75 units sold 3750
Expenses:
Wages and salaries $ 20,000 $ 21,500 $ 5,000 $ 30 units sold 1500
Gasoline and supplies 4,500 4,950 $ 9 units sold 450
Equipment maintenance 1,500 1,650 $ 3 units sold 150
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
No variable Equipment Depreciation 2,500 2,500 $ 2,500 0 550
No variable Insurance 1,000 1,000 $ 1,000 0 $ 21,500 $ 5,000 $ 16,500 flexed
Total expenses 32,500 34,600 y a bX
Net operating income $ 5,000 $ 6,650 $ 1,650 ←←Δ due to Volume =
STATIC v. FLEX Budget
For the Period Ended June 30 3
Single Driver = Units Sold F/(Unfav)
Planning Flexible Activity
Budget Budget or Volume
Variance Revenue
Number of units (Q) 500 550 50 Fav Variance
Revenue $ 37,500 $ 41,250 $ 3,750 Fav Driver
Expenses: Variable each Qty. bX a
Wages and salaries $ 20,000 $ 21,500 $ (1,500) Unfav $ 30 550 16,500 $ 5,000
Gasoline and supplies 4,500 4,950 $ (450) Unfav $ 9 550 4,950 $ - 0
Equipment maintenance 1,500 1,650 $ (150) Unfav $ 3 550 1,650 $ - 0
Office and shop utilities 1,000 1,000 $ - 0 --
Office and shop rent 2,000 2,000 $ - 0 --
Equipment Depreciation 2,500 2,500 $ - 0 --
Insurance 1,000 1,000 $ - 0 --
Total expenses 32,500 34,600 (2,100) Unfav
Net operating income $ 5,000 $ 6,650 $ 1,650 Fav
Single Driver = Units Sold
STATIC v. FLEX Budget 3
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
Expenses: Reminder Y = a + bX Fixed Variable
Wages and salaries $ 20,000 $ 21,500 $ (1,500) -7.5% U $ 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
Revenue 10.0% Up = Fav 3
Net operating income 33.0% Up = Fav
PPT 4 Single Driver = Units Sold
Revenue Variance Added Excel 4
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
Budget or Volume Budget Revenue Actual Variance All Controllable
Variance Variance
Number of units (Q) 500 550 550
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 //
Static 37,500 Units $s Each each Volume Spending
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
Activity (1,500) 50 30 $ 5,000
Price/other (2,000)
Actual 23,500 4
PPT
ClassCo Manufacturing
STATIC Budget Y=a+bX Static 5a
Multiple Drivers Budget
Sales Qty. 3,000 Hours 12,000 Driver 4.00 Hrs.Each
Sell each $ 340 Units 3,000 Driver
Sales 1,020,000 STATIC Budget
TWO Variable 67% 33%
Expense Driver Each Fixed Fixed Variable % Fxd.
100% V Direct labor DL Hours $ 14.00 0 168,000 0 168,000 0%
100% V Material & Supplies Units $ 22.00 0 66,000 0 66,000 0%
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%
Y=a+bX Testing Units $ 4.00 80,000 92,000 = $80,000 + $4 X 3000 units 80,000 12,000 87%
Y=a+bX 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
FLEX Budget 5b
Actual Actual
Hours 14,000 72,600 0
Actual UnitsSold 3,345 Units 3,300 made
Sales $ 1,137,300
TWO Variable 64% 36%
Expense Driver Each Fixed Fixed Variable Variable
Direct labor DL Hours $ 14.00 0 196,000 Flexible budget 0 196,000 14,000 $ 14.00
Material & Supplies Units $ 22.00 0 72,600 Flexible budget 0 72,600 14,000 $ 22.00
Line Supervision Units $ 3.00 110,000 119,900 Flexible budget 110,000 9,900 3,300 $ 3.00
Deprecation N/A $ - 0 250,000 250,000 Flexible budget 250,000 0 N/A N/A
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
Admin. N/A $ - 0 120,000 120,000 Flexible budget 120,000 0 N/A N/A
Total: 580,000 906,700 580,000 326,700
Sum F/V 906,700
Operating Income 230,600
ClassCo Manufacturing
Actual Actual
Units 3345 Hours 14,000
Units 3,300 made
Sales 1,145,300
Expense
Direct labor 204,000
Material & Supplies 69,000
Line Supervision 131,000
Deprecation 248,500
Rework & repair 47,000
Testing 95,000
Admin. 128,000
5c Total 922,500
Operating Income 222,800
STATIC v. FLEX Budget Non-Con. Volume 5d Controllable Performance
For the Period Ended June 30 F/(Unfav) from above F/(Unfav) Budget
Multiple Drivers Planning Activity Flexible Spending to Actual
Budget or Volume Budget Actual Variance
Variance Variance
DL Hrs 12,000 14,000 14,000
Units 3,000 3,300 3,300
Sales 1,020,000 117,300 1,137,300 8,000 1,145,300 125,300 0
Expense
Direct labor 168,000 (28,000) 196,000 (8,000) 204,000 (36,000) 0
Material & Supplies 66,000 (6,600) 72,600 3,600 69,000 (3,000) 0
Line Supervision 119,000 (900) 119,900 (11,100) 131,000 (12,000) 0
Deprecation 250,000 0 250,000 1,500 248,500 1,500 0
Rework & repair 50,000 (5,000) 55,000 8,000 47,000 3,000 0
Testing 92,000 (1,200) 93,200 (1,800) 95,000 (3,000) 0
Admin. 120,000 0 120,000 (8,000) 128,000 (8,000) 0
Total 865,000 (41,700) 906,700 (15,800) 922,500 (57,500) 0
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

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 42471 60060
a77 Metal frame unit 1 0.50% 1.005 1.005 $ 11.00 $ 11.06 $ 11.055 45191 14600
l22 Laminate cover sq.' 10 2% 10.200 10.200 $ 0.75 $ 7.65 $ 7.650 1212 3500
s44 side trim linear ft. 9.2 4% 9.568 9.568 $ 0.22 $ 2.10 $ 2.105 2952 6700
t51 top cover sq.' 10 1% 10.100 10.100 $ 4.25 $ 42.93 $ 42.925 4634 84860
LL2 Leg assemblies unit 4 0 4 909
M98 Metal tubing linear ft. 3 6% 3.180 12.720 $ 1.89 $ 6.01 $ 24.041 3024
FF8 end tabs unit 1 0.40% 1.004 4.016 $ 0.04 $ 0.04 $ 0.161 4403
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 Labor
For simplicity 1-step assembly - may be many steps per ass'y Time Std. Period Prod.% Std. Std. Std. Std.
Qty per UM Qty PFD Time Productivity for Std. Minutes Price Cost ea. Cost ea.
4 LL2 Leg assemblies Minutes 6.0 12% 6.8181818182 89% 93% 7.331 $ 12.00 $ 1.466 $ 5.865 4 per table
1 AA2 Top Assembly Minutes 11.5 12% 13.068 92% 94% 13.9023210832 $ 14.75 $ 3.418 $ 3.418 1 per table
Can
6.0 89% Use +G46/(1-H46) Total $ 9.283 Cost
This 6 / (1 - 12%)
Variable OH 4 LL2 7.331 29.326
1 AA2 13.902 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.
Production and Machine-Hour Data
Budgeted production 30,000 units
Standard machine-hours per unit 3.00 hours
Budgeted machine-hours 90,000 hours
Actual production 28,000 units each 3.00
Standard machine-hours allowed for the actual production 84,000 hours act @ std Q made 28,000
Actual machine-hours 88,000 hours
Cost / Spending Data
BUDGET: Rate per machine hour
Budgeted variable manufacturing overhead $ 90,000 $ 1.000 Std. 90000 X $ 1.000
Budgeted fixed manufacturing overhead 270,000 $ 3.000 Std. $ 270,000 / 90,000
Total budgeted manufacturing overhead $ 360,000 $ 4.000 Std. $ 1.000 + $ 3.000
ACTUAL: Rate per Actual hour
Actual variable manufacturing overhead given $ 100,000 $ 1.136 $ 100,000 / 88,000
Actual fixed manufacturing overhead given 280,000 $ 3.182 $ 280,000 / 88,000
Total actual manufacturing overhead $ 380,000 $ 4.318
FLEX budget for Volume
Units 88,000
Variable OH $ 88,000 $ 1.000 Budget rate
Fixed OH $ 270,000 fixed 264000
Total $ 358,000
Applied or Standard or Absorbed overhead
Units 84,000 std hrs for act. Qty.
Variable OH $ 84,000 $ 1.000
Fixed OH $ 252,000 $ 3.000
Total $ 336,000 $ 4.000 16016
Excel 4
Budget vs. Actual
Managerial Accounting: Variable Fixed Total
Plan $ 90,000 $ 270,000 $ 360,000
FLEX $ 88,000 $ 270,000 $ 358,000
Actual $ 100,000 $ 280,000 $ 380,000
Fav/[Unfav] Volume $ 2,000 $ - 0 $ 2,000 Fav spend less
Fav/[Unfav] Spending $ (12,000) $ (10,000) $ (22,000) 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 $ 84,000 $ 252,000 $ 336,000 84,000 Fav/(Unfav) 88,000 84,000 $ 2,000 volume
Rate variance $ (12,000) $ (12,000) (0.136) ∆ rate. X act.hrs. $ (22,000) 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 $ (18,000) $ (18,000) ∆ Budget or Plan Spending - Actual spdg. OR ∆ Hrs. Budget - std hrs X std.rate
Total/Net variances $ (44,000) BUDGET: ACTUAL:
270,000 280,000
(10,000)
Excel 5 BUDGET: Applied or Standard or Absorbed overhead
Doing the Accounting with Standard Costs 90,000 84,000 (6,000)
Only standard material costs enter inventory $ 3.000 std fxd rate
Purchase price variances are removed at receipt (18,000)
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
Only std. labor & OH are input to inventory
variances are removed at each stage of production
Materials Received DR CR DR CR
material purchased at std. value Matl. Inventory 500
material purchased at actual cost A/P 525
Difference std - to actual variance acctg in CoGS 25
if Act > std If std > act unfav.var.
Materials Used DR CR DR CR
Materials into WIP @ std. WIP 615
Materials into WIP @ std. Matl. Inventory 615
Std. matl in Production Completed FG 600
Matl. @ std. used in Production Completed WIP 615
Difference std - to actual variance acctg in CoGS 15
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
Difference std - to actual FAV variance acctg in CoGS FAV
if Act > std Unfav If std > act: FAV
Production Completed FG 402
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. & $335K credit
a $44K un fav Variance

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

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.

Ch.13 CapX

Chapter 13 Capital Budgeting Excel 1
Cost $ 3,170 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 4 $ 1,000 $ 683
$ (0) $ (0)
initial [0] 1 2 3 4
Buy Machine (3,170)
Cash inflow 1,000 1,000 1,000 1,000
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
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)
Cost of Capital PE on
Excel 2 Additional Future
$billion Interst rate PE now earnings
Debt 50 8.0% 0.25 2.0%
Market cap 150 18 14.5 0.75 5.2%
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
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. 270,000 133,300 Profitability
Tax Rate = 40% 79,980 index
$ 260,000 Initial investment
Hurdle rate: 10% $ 85,844 PV
If WC now By hand 33.0%
Period Equipment WC Profit Net Cash Flow PV by Year
0 $ (160,000) $ (100,000) $ (260,000) $ (260,000)
1 $ 79,980 $ 79,980 $ 72,709 =+E47/((1+F$43)^A47)
2 $ 79,980 $ 79,980 $ 66,099
3 $ (30,000) $ 79,980 $ 49,980 $ 37,551 $ 85,844
4 $ 79,980 $ 79,980 $ 54,627 20.6%
5 $ 5,000 $ 100,000 $ 79,980 $ 184,980 $ 114,858 $ 85,844
NPV $ 85,844 +E46+NPV(F43,E47:E51)
IRR 20.6% +IRR(E46:E51,0.1)
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 10.4% $ 0 Back to PPT 21
Back to PPT 21
Cash flow per year Inflow Working Net 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
$ 0 Back to PPT 21
NPV @ Hurdle Rate $ 28,156 18.6% $ 150,000 $ 28,156 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 ;=+IRR(E85:E95,0.2)
2 $ 20,000 15,389 =+E87/(1+$E$96)^D87 14.0%
3 $ 20,000 13,499 =+E88/(1+$E$96)^D88
4 $ 20,000 11,841 =+E89/(1+$E$96)^D89
5 $ 20,000 10,387 =+E90/(1+$E$96)^D90
6 $ 20,000 9,111 =+E91/(1+$E$96)^D91
7 $ 20,000 7,992 =+E92/(1+$E$96)^D92
8 $ 20,000 7,011 =+E93/(1+$E$96)^D93
9 $ 20,000 6,150 =+E94/(1+$E$96)^D94
EXCEL "IRR" function 10 $ 20,000 5,395 =+E95/(1+$E$96)^D95
=+IRR(E85:E95,.22) 14.0% 0
Quick Check Excel 6
Year Proof by hand
0 $ (79,310) -79310
1 $ 22,000 19643
2 $ 22,000 17539
3 $ 22,000 15660
4 $ 22,000 13983
5 $ 22,000 12485
IRR 12.0% - 0
+IRR(F100:F105,0.15)
CAR
WASH
Excel 7 IRR problem
NOT NPV problem
A !0% not used
(300,000) New
(175,000) OLD
(125,000) Difference
B 40,000 OLD
(85,000) NET difference
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 ◄Answer► 15,000 11,270 =+H131/(1+B$126)^B131
$ 175,000 4 45,000 60,000 15,000 10,245 =+H132/(1+B$126)^B132
$ 56,348 5 45,000 60,000 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 15,000 7,697 =+H135/(1+B$126)^B135
NEW 8 45,000 60,000 15,000 6,998 =+H136/(1+B$126)^B136
Profitability 9 45,000 60,000 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
$ 260,000 =+IRR(C128:C138,0.15) 17.6% 17.2% 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 31.5% Nominal $
+56348/175000 +83149/260000 56,348 =+C128+NPV(B126,C129:C138)
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
5 $ 30,000 $ 24,000 $ 6,000 $ 6,000 $ 3,116 =+F163/(1+$B$157)^B163
IRR 10.9% 13.4% (5,229)
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)
BAY
Excel 10
Rate 14% $34,320
Needed return $34,320
+PMT(F197,A207,D203)
+pmt(rate, nper,pv] $34,320
rate = 14%, Nper=4, pv = ($100K)
answer = "c."
PV$ PV$
Year Tangible Intangible Total PV$ Tangible Intangible
0 $ (100,000) $ - 0 $ (100,000) $ (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
Proof $ (60,000) $ 97,282 14.0% IRR $ 100,000 $ 29,137 $ 70,863
$0.00 NPV
TANKER Excel 11
Pv of project End salvage value = $1040,000
Negative PV without salvage $ 1,040,000
20 Years
12% hurdle rate
PV x (1 + rate)^years $ 10,032,145 1.12 to the 20th power x shiortage
Future value of $ 1,040,000 after 20 years
+G214*(1+G216)^G215
Excel 12 Daily Grind Discounted
Cash flows ∑ Non-Disc.cash flow Discounted cash flow ∑ discounted cash flow Discount rate 14%
0 $ (140,000) $ - 0 $ (140,000) $ - 0
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) $ - 0
5 $ 35,000 $ 35,000 $ 18,178 $ (19,842) $ 35,000
6 $ 35,000 $ 70,000 $ 15,946 $ (3,897) - 0
7 $ 35,000 $ 105,000 $ 13,987 $ 10,091
8 $ 35,000 $ 140,000 $ 12,270 $ 22,360 $ (3,897)
9 $ 35,000 $ 175,000 $ 10,763 $ 33,123 $ 13,987
10 $ 35,000 $ 210,000 $ 9,441 $ 42,564 0.28
4.00 Years 6.28
Excel 13 Discounted
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)
4 $ 1,800 $ 1,000 $ 1,066 $ (572)
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) $ (572) =+PV(14%,5,100)
$ 779 ($343.31)
0.73
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
60,000 ERROR:#REF!
60,000 ERROR:#REF! =+PV(B355,A360,B356)
60,000 ERROR:#REF! ERROR:#REF!
60,000 ERROR:#REF!
60,000 ERROR:#REF!
ERROR:#REF!
14% by hand
ERROR:#REF!
(100) ERROR:#REF! =+PV(B355,A360,B356)
(100) ERROR:#REF! 343.31
(100) (67.50)
(100) (59.21)
(100) (51.94)
ERROR:#REF!

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

•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.

How large would the salvage value need to be ?

Should Holland open a mine on the property?

If the interest rate is 14%, how much would you have to put in the bank today so as to be able to withdraw $100 at the end of each of the next five years? a. $34.33 b. $500.00 c. $343.30 d. $360.50

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

taxes

Ch.12

No info

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

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 sheet 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 sheet 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 Inv. 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/Inventoryèè Variable Costing FAC costing Costing Method for Inc.Statement/Inventoryèè Variable Costing FAC costing Costing Method for Inc.Statement/Inventoryèè 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 MOHé Difference Fixed MOHê
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 aboveéééé 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 V*A*R*I*A*B*L*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%

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

2

3

6

1

7

5

4

1

6

8

4

2

3

5

7

9

11

10

cell ref.

increase by 10000 using formula

text box ▼

8

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

Actual data

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

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 10932.38833071419 11466.99708102186 12169.839354153622 13040.915150109477 15530.77128790604 20469.359813475501 22604.056291976758 21990.938564351178 19598.284017519643 16203.705379202409 10169.729693911639 11624.01503565768

Actual data

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

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:

#3

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:

#4

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
&A
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
&A
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

2xx0

Base

2xx52xx42xx12xx22xx3

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
&A
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
&A
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 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
&A
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

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
&A
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

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
&A
Page &P

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
&A
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
&A
Page &P

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

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
&A
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%
&A
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
&A
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

McGraw-Hill/Irwin

Slide *

 Prepare Management Reports Customer Margin

Customer Margin Analysis
The second step is to incorporate Acme Auto Parts’ previously computed activity-based cost assignments.

$15900

Prior slide

Cost systemn

$ 12,916

ABC system

D

C

B

A

*

The second step is to incorporate Acme Auto Parts’ previously computed activity-based cost assignments.

Ch.7 PPT Additions 3/1/2017

Sheet1

Acme Auto
Parts
Sales $ 29,200
Direct costs
Direct material 7,500
Direct labor 6,700
Shipping 1,700
ABC cost assignments [Qty]
Customer orders[12] 5,424
Product design [4] 3,040
Order size [448 MH] 2,912
Customer relations - Qty.1 1,540

Sheet2

Sheet3

McGraw-Hill/Irwin

Slide *

 Prepare Management Reports: Customer Margin

Customer Margin Analysis
The third step is to compute Acme Auto Parts’ customer margin of $384 by deducting all its direct and indirect costs from its sales.

Taceable

ABC pools

Not = Contrib. = Margin Sales minus Variable Costs/Expenses

NOT

In

ABC

Pools

From

ABC

Pools

*

The third step is to compute Acme Auto Parts’ customer margin of $384 by deducting all its direct and indirect costs from its sales.

Ch.7 PPT Additions 3/1/2017

Sheet1

Acme Auto Parts
Sales $ 29,200
Direct costs
Direct material $ 7,500
Direct labor 6,700
Shipping 1,700
Customer orders 5,424
Product design 3,040
Order size 2,912
Customer relations 1,540 28,816
Customer margin via ABC $ 384

Sheet2

Sheet3

McGraw-Hill/Irwin

Slide *

End Customer Margin Analysis

McGraw-Hill/Irwin

Slide *

Product Line Margins Computed Using the Traditional Cost System

Product’s Sales and Direct cost data.

Ch.7 PPT Additions 3/1/2017

Sheet1

SureStarts LongLifes 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

Sheet2

Sheet3

McGraw-Hill/Irwin

Slide *

Product Margins Computed Using the Traditional - GAAP - Cost System [NOT ABC]

The second step in computing product margins
is to compute the plantwide overhead rate.

Fxd. & Var. Mfg.OH

Plantwide manufacturing

overhead rate

$14,000,000

800,000 MH

= $17.50 per machine-hour

=

*

The second step is to compute the plantwide overhead rate. In our example, the numerator is the $14,000,000 of manufacturing overhead shown earlier, and the denominator is the 800,000 machine hours used for the order size activity from the ABC system. The plantwide overhead rate is $17.50 per machine-hour.

Ch.7 PPT Additions 3/1/2017

Sheet1

Manufacturing Overhead Costs at Baxter Battery
Production Department
Indirect factory wages $ 6,000,000
Factory equipment depreciation 3,500,000
Factory utilities 2,500,000
Factory building lease 2,000,000
Total manufacturing overhead $ 14,000,000

Sheet2

Sheet3

Sheet1

Manufacturing Overhead Costs at Classic Brass
Production Department
Indirect factory wages $ 500,000
Factory equipment depreciation 300,000
Factory utilities 120,000
Factory building lease 80,000
Total manufacturing overhead $ 1,000,000
Machine-hours
SureStarts (800,000 @ 0.60 hours) 480,000
LongLifes (400,000 @ 0.80 hours) 320,000
Total machine-hours 800,000

Sheet2

Sheet3

McGraw-Hill/Irwin

Slide *

Product Margins Computed Using the Traditional Cost System

The third step in computing product margins is
allocate manufacturing overhead to each product.

480,000 hours × $17.50 per hour = $8,400,000

*

The third step is to allocate manufacturing overhead to each product. For our example, 480,000 machine-hours were worked on SureStarts, so $8,400,000 (480,000 hours × $17.50) of manufacturing overhead is assigned to this product. LongLifes are assigned the remaining $5,600,000 (320,000 × $17.50) of manufacturing overhead.

Ch.7 PPT Additions 3/1/2017

Sheet1

Machine Overhead Overhead
Hours Rate Allocated
SureStarts 480,000 $ 17.50 $ 8,400,000
LongLifes 320,000 17.50 5,600,000
Total overhead allocated to products $ 14,000,000

Sheet2

Sheet3

McGraw-Hill/Irwin

Slide *

Comparing Product Margins

The first step in computing product margins is to
gather each product’s sales and direct cost data.

EXCEL C/D

*

The first step is to gather each product’s sales and direct cost data as shown.

Ch.7 PPT Additions 3/1/2017

McGraw-Hill/Irwin

Slide *

Differences Between ABC and Traditional Product Costs-1

There are three reasons why the
reported product margins for the
costing systems differ from one another.

Traditional [GAAP] costing allocates all manufacturing
overhead to products. ABC costing only assigns
manufacturing overhead costs consumed [allocated] by products to those products. Some manufacturing is unallocated . Variable no fixed MOH needs to go to products

*

There are three reasons why the reported product margins for the two costing systems differ from one another. The first reason is that the traditional cost system allocates all manufacturing overhead to products. The ABC system only assigns manufacturing overhead costs consumed by products to those products. More specifically, the ABC system does not assign the manufacturing overhead costs consumed by the customer relations activity to products because these costs are caused by customers, not specific products. The ABC system does not assign the manufacturing overhead costs included in the “other” activity to products because these organization-sustaining and unused capacity costs are not caused by products.

Ch.7 PPT Additions 3/1/2017

McGraw-Hill/Irwin

Slide *

Differences Between ABC and Traditional Product Costs-2

  • GAAP costing allocates all manufacturing
    overhead costs using a production volume-related

allocation base. ABC costing also allocates not only production [non-MOH allocated] related allocation bases.

There are three reasons why the
reported product margins for the three
costing systems differ from one another.

*

The second reason why the reported product margins for the two costing systems differ from one another is that the traditional cost system allocates all manufacturing overhead costs using a volume-related allocation base (machine-hours). The ABC system uses volume-related and non-volume related allocation bases to assign manufacturing overhead to products. More specifically:

  • The traditional cost system allocates 60% ($8,400,000 ÷ $14,000,000) of all manufacturing overhead to SureStart and 40% ($5,600,000 ÷ $14,000,000) to LongLifes.

  • The ABC system assigns 40% ($1,808,000 ÷ $4,520,000) and 60% ($2,712,000 ÷ $4,520,000) of customer orders activity cost (a batch-level cost) to SureStarts and LongLifes, respectively.

  • The ABC system assigns 0% and 100% of design change activity cost (a product-level cost) to SureStarts and LongLifes, respectively.

Ch.7 PPT Additions 3/1/2017

McGraw-Hill/Irwin

Slide *

Differences Between ABC and Traditional Product Costs-3 ExcelD

  • Traditional [GAAP] does not apply to products selling and
    administrative expenses because they are
    assumed to be period expenses.

Variable costing does not – allocates variable expense.

ABC costing directly traces shipping costs to products and
includes nonmanufacturing overhead costs caused
by products in the activity cost pools that are
assigned to products.

FAC & Variable can also do this

There are three reasons why the
reported product margins for the two
costing systems differ from one another.

*

The third reason why the reported product margins for the two costing systems differ from one another is that the traditional cost system disregards selling and administrative expenses because they are assumed to be period expenses. The ABC system directly traces shipping costs to products and includes nonmanufacturing overhead costs caused by products in the activity cost pools that are assigned to products.

Ch.7 PPT Additions 3/1/2017

McGraw-Hill/Irwin

Slide *

Variable vs. ABC

1. ABC ignores variability [treats fixed as variable]

2. ABC meaningful only at a selected volume.

3. Contribution % under ABC is not contribution realized with change in sales/production

4. Subjective allocation basis often

McGraw-Hill/Irwin

Slide *

Targeting Process Improvement

Activity-based management is used in conjunction with ABC to identify areas that would benefit from process improvements by focusing on activities to eliminate waste, decrease processing time, and reduce defects.

Can’t spend $3M for design on Longlife

Benchmarking can be used to compare activity cost information with standards of performance achieved by other organizations.

Difficulty: don’t know others comparable data

ABC activity rates can also provide valuable clues concerning where there is waste and the opportunity for improvement.

feb26

*

Activity-based management is used in conjunction with ABC to identify areas that would benefit from process improvement. It involves focusing on activities to eliminate waste, decrease processing time, and reduce defects.

While the theory of constraints approach discussed in Chapter 1 is a powerful tool for targeting process improvement efforts, the activity rates computed in ABC can also provide valuable clues concerning where there is waste and the opportunity for improvement.

Benchmarking can be used to compare an organization’s activity rates with standards of performance that are external to the organization.

Ch.7 PPT Additions 3/1/2017

McGraw-Hill/Irwin

Slide *

Activity-Based Costing and External Reporting

Companies do not use ABC [NOT GAAP]
for external reporting because . . . NOT part of FINANCIAL records

External reports are less detailed than internal reports.

It may be difficult to make changes to the company’s accounting system.

ABC does not conform to GAAP.

Auditors* may be suspect of the subjective allocation process based on interviews with employees.

* ABC used for Managerial Reporting usually not audited as it is not part of the financial reporting of the entity

*

There are four reasons why most companies do not use ABC for external reporting purposes. First, external reports are less detailed than internal reports in the sense that individual product costs are not reported. External reports only disclose cost of goods sold and ending inventory. Therefore, if some products are undercosted and others are overcosted, the errors tend to cancel each other out when the product costs are added together. Next, it is often very difficult to change a company’s accounting system because it is deeply embedded within complex computer programs that have evolved over many years.

Third, an ABC system, such as the one described in the chapter, does not conform to generally accepted accounting principles (GAAP). It excluded some organization-sustaining manufacturing costs, some unused capacity costs, and it included some nonmanufacturing costs in its product cost calculations. These cost system design attributes do not comply with GAAP. Finally, auditors are likely to be uncomfortable with cost allocations that are based upon interviews with the company’s personnel. This type of subjective data can be easily manipulated by management.

Ch.7 PPT Additions 3/1/2017

McGraw-Hill/Irwin

Slide *

ABC Limitations

Substantial resources
required to implement
and maintain.

Resistance to
unfamiliar numbers
and reports.

Desire to fully
allocate all costs
to products.

Thinking of ABC as

variable. When its

not

Does not conform to
GAAP. Three costing
systems if CVP-FAC-ABC

all used.

*

There are five limitations of activity-based costing. First, implementing an ABC system requires substantial resources. The benefits of increased cost accuracy may not outweigh the implementation costs.  Next, ABC systems produce numbers, such as product margins, that are at odds with the numbers produced by traditional cost systems. Managers are not accustomed to managing their operations using these numbers; hence, ABC inevitably faces resistance. This underscores the importance of having top management support for and cross-functional involvement with the ABC implementation. Also, in practice, most managers insist on fully allocating all costs to products. The ABC system described in the main portion of this chapter does not conform to this preference.  The next limitation is that ABC systems do not automatically identify the relevant costs for particular decisions; therefore, ABC data can be easily misinterpreted and must be used with care when making decisions. Costs assigned to products, customers, and other cost objects are only potentially relevant. Finally, most organizations use ABC as a supplement to rather a replacement for their existing cost system. Maintaining two cost systems is costlier than maintaining just one system and it may cause confusion about which set of numbers is to be relied on.

Ch.7 PPT Additions 3/1/2017

© 2010 The McGraw-Hill Companies, Inc.

ABC Action Analysis

Appendix 7A

*

Appendix 7A: ABC Action Analysis.

Ch.7 PPT Additions 3/1/2017

McGraw-Hill/Irwin

Slide *

Learning Objective 6

(Appendix 7A)

Prepare an action analysis report using activity-based costing data and interpret the report.

HCT

Learning objective number 6 is to prepare an action analysis report using activity-based costing data and interpret the report.

*

Ch.7 PPT Additions 3/1/2017

McGraw-Hill/Irwin

Slide *

Appendix 7A: ABC Action Analysis

Conventional ABC analysis does not identify potentially relevant costs. An action analysis report helps because it:

  • Shows what costs have been
    assigned to a cost object.
  • Indicates how difficult it would be to
    adjust those costs in response to
    changes in the level of activity.

*

A conventional ABC analysis does not identify potentially relevant costs. An action analysis report can help in this regard because it shows what costs have been assigned to a cost object and it indicates how difficult it would be to adjust those costs in response to changes in the level of activity.

Ch.7 PPT Additions 3/1/2017

McGraw-Hill/Irwin

Slide *

Constructing an action analysis report begins with the first-stage allocation process. In addition to computing an overall activity rate for each activity cost pool, an activity rate is computed for each type of overhead cost that is consumed supporting a given activity.

Let’s revisit the stage-one allocations
from the Baxter Battery Company example that we discussed earlier.

Appendix 7A: ABC Action Analysis

*

Constructing an action analysis report begins with the first-stage allocation process. In addition to computing an overall activity rate for each activity cost pool, an activity rate is computed for each type of overhead cost that is consumed supporting a given activity.

Let’s revisit the stage-one allocations from the Baxter Battery Company example that we discussed earlier in the chapter.

Ch.7 PPT Additions 3/1/2017

McGraw-Hill/Irwin

Slide *

Appendix 7A: ABC Action Analysis

$1,800,000 ÷ 10,000 orders = $180 per order

Other entries in the table are computed similarly.

*

Part I.

Rather than computing one activity rate for each activity cost pool as was done previously (see the bottom of the slide for these rates), an activity rate is computed for each type overhead cost (or for each cell in the matrix).

Part II.

For example, the customer orders activity has six activity rates that sum to the total of $452 from the conventional ABC analysis.

Ch.7 PPT Additions 3/1/2017

Sheet1

Activity Cost Pools
Customer Orders Design changes Order Size Customer Relations Other Total
Production Department
Indirect factory wages $ 1,800,000 $ 1,800,000 $ 1,200,000 $ 600,000 $ 600,000 $ 6,000,000
Factory equipment depreciation 700,000 350,000 2,100,000 - 0 350,000 3,500,000
Factory utilities - 0 250,000 1,500,000 - 0 750,000 2,500,000
Factory building lease - 0 - 0 - 0 - 0 2,000,000 2,000,000
General Administrative Department
Administrative wages and salaries 1,200,000 400,000 400,000 1,200,000 800,000 4,000,000
Office equipment depreciation 270,000 90,000 - 0 180,000 360,000 900,000
Administrative building lease - 0 - 0 - 0 - 0 1,100,000 1,100,000
Marketing Department
Marketing wages and salaries 450,000 150,000 - 0 750,000 150,000 1,500,000
Selling expenses 100,000 - 0 - 0 350,000 50,000 500,000
Total $ 4,520,000 $ 3,040,000 $ 5,200,000 $ 3,080,000 $ 6,160,000 $ 22,000,000

Sheet2

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Sheet4

Sheet5

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Sheet1

Activity Cost Pools
Customer Orders Design Changes Order Size Customer Relations Other
Total Activity 10,000 4,000 800,000 2,000 N/A
Production Department
Indirect factory wages $ 180 $ 450.00 $ 1.50 $ 300
Factory equipment depreciation 70 87.50 2.63 - 0
Factory utilities - 0 62.50 1.88 - 0
Factory building lease - 0 - 0 - 0 - 0
General Administrative Department
Administrative wages and salaries 120 100.00 0.50 600
Office equipment depreciation 27 22.50 - 0 90
Administrative building lease - 0 - 0 - 0 - 0
Marketing Department
Marketing wages and salaries 45 37.50 - 0 375
Selling expenses 10 - 0 - 0 175
Total $ 452 $ 760.00 $ 6.50 $ 1,540

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McGraw-Hill/Irwin

Slide *

$180 per order × 4,000 orders = $720,000

Other entries in the table are computed similarly.

*

The second-stage allocation process requires assigning product costs by each type of overhead cost. In the Baxter Battery Company illustration, there are, for example, six activity cost assignments from the customer orders activity to the SureStart Batteries. These six assignments total $1,808,000 as in the conventional ABC analysis.

Notice, the total ABC costs assigned to SureStart Batteries are $5,832,000, which is the same as in the conventional ABC analysis.

Ch.7 PPT Additions 3/1/2017

Sheet1

Action Analysis Cost Matrix for SureStart Batteries
Activity Cost Pools
Customer Orders Design Changes Order Size Customer Relations Total
Total activity for batteries 4,000 - 0 480,000 N/A
Production Department
Indirect factory wages $ 720,000 $ - 0 $ 720,000 $ 1,440,000
Factory equipment depreciation 280,000 - 0 1,260,000 1,540,000
Factory utilities - 0 - 0 900,000 900,000
Factory building lease - 0 - 0 - 0 - 0
General Administrative Department - 0 - 0
Administrative wages and salaries 480,000 - 0 240,000 720,000
Office equipment depreciation 108,000 - 0 - 0 108,000
Administrative building lease - 0 - 0 - 0 - 0
Marketing Department - 0 - 0
Marketing wages and salaries 180,000 - 0 - 0 180,000
Selling expenses 40,000 - 0 - 0 40,000
Total $ 1,808,000 $ - 0 $ 3,120,000 $ 4,928,000

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McGraw-Hill/Irwin

Slide *

$180 per order × 6,000 orders = $1,080,000

Other entries in the table are computed similarly.

*

As another example, there are six assignments from the design change activity to the LongLife Batteries. These six assignments total $3,040,000 as in the conventional ABC analysis.

Notice, the total ABC costs assigned to the custom compass housings is $7,832,000, which is the same as in the conventional ABC analysis.

Ch.7 PPT Additions 3/1/2017

Sheet1

Action Analysis Cost Matrix for LongLife Batteries
Activity Cost Pools
Customer Orders Design Changes Order Size Customer Relations Total
Total activity for battery housing 6,000 4,000 320,000 N/A
Production Department
Indirect factory wages $ 1,080,000 $ 1,800,000 $ 480,000 $ 3,360,000
Factory equipment depreciation 420,000 350,000 840,000 1,610,000
Factory utilities - 0 250,000 600,000 850,000
Factory building lease - 0 - 0 - 0 - 0
General Administrative Department - 0 - 0
Administrative wages and salaries 720,000 400,000 160,000 1,280,000
Office equipment depreciation 162,000 90,000 - 0 252,000
Administrative building lease - 0 - 0 - 0
Marketing Department - 0 - 0
Marketing wages and salaries 270,000 150,000 - 0 420,000
Selling expenses 60,000 - 0 - 0 60,000
Total $ 2,712,000 $ 3,040,000 $ 2,080,000 $ 7,832,000

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McGraw-Hill/Irwin

Slide *

Next, label each cost using an ease of adjustment code:

  • Green costs adjust more or less automatically to
    changes in activity level without any action by
    managers.
  • Yellow costs can be adjusted to changes in activity level, but it would require management action to realize the change in cost.
  • Red costs can be adjusted to changes in activity
    level only with a great deal of difficulty and with
    management intervention.

Appendix 7A: ABC Action Analysis

*

The next step in preparing an action analysis report is to label each cost using an ease of adjustment code. Green costs adjust more or less automatically to changes in activity level without any action by managers. For example, direct materials cost would automatically change in response to changes in activity level without management action.

Yellow costs can be adjusted to changes in activity level, but it would require management action to realize the change in cost. For example, direct and indirect labor may be classified as yellow costs because management action would be required to hire or layoff employees.

Red costs can be adjusted to changes in activity level only with a great deal of difficulty and with management intervention. For example, a factory building lease would be a red cost because it would be very difficult and expensive to break the lease.

Ch.7 PPT Additions 3/1/2017

McGraw-Hill/Irwin

Slide *

Appendix 7A: ABC Action Analysis

*

The last step is to calculate green, yellow, and red margins. For example, the green, yellow, and red margins for the LongLife Battery line would be $11,700,000, $478,000, and ($1,132,000), respectively.

In this example, before managers would decide to eliminate the LongLife Battery line, they would need to commit to taking management action where required to reduce costs or redeploy resources.

Ch.7 PPT Additions 3/1/2017

Sheet1

Action Analysis of LongLife Batteries
Sales $ 18,700,000
Green costs
Direct materials $ 6,000,000
Shipping costs 1,000,000 7,000,000
Green margin $ 11,700,000
Yellow costs
Direct labor 5,000,000
Indirect factory wages 3,360,000
Factory utilities 850,000
Administrative wages and salaries 1,280,000
Office equipment depreciation 252,000
Marketing wages and salaries 420,000
Selling expenses 60,000 11,222,000
Yellow margin $ 478,000
Red costs
Factory equipment depreciation 1,610,000
Factory building lease - 0
Administrative building lease - 0 1,610,000
Red margin $ (1,132,000)

Sheet2

Sheet3

© 2010 The McGraw-Hill Companies, Inc.

STOP
Review HW problem

Appendix 7A

*

Appendix 7A: ABC Action Analysis.

Ch.7 PPT Additions 3/1/2017

© 2010 The McGraw-Hill Companies, Inc.

Using a Modified Form of Activity-Based Costing to Determine Product Costs for External Reports

Appendix 8B

*

Appendix 8B: Using a Modified Form of Activity-Based Costing to Determine Product costs for External Reports

Ch.7 PPT Additions 3/1/2017

McGraw-Hill/Irwin

Slide *

Learning Objective 7

(Appendix 8B)

Use activity-based costing techniques to compute unit product costs for external reports.

Learning objective number 7 is to use activity-based costing techniques to compute unit product costs for external reports.

*

Ch.7 PPT Additions 3/1/2017

McGraw-Hill/Irwin

Slide *

Appendix 8B

ABC product costs:

Include organization-sustaining costs
and unused capacity costs.

Exclude nonmanufacturing costs even
if they are caused by the products.

A modified form of activity-based
costing can be used to develop product
costs for external financial reports.

*

A modified form of activity-based costing can be used to develop product costs for external financial reports. With this approach, ABC includes all manufacturing costs, such as organization-sustaining costs and unused capacity costs, in product costs. Also, ABC excludes all nonmanufacturing costs even if they are clearly caused by the products.

Ch.7 PPT Additions 3/1/2017

McGraw-Hill/Irwin

Slide *

Appendix 8B

Simmons’ Industries provides the following information
for the company as a whole and for its only two
products—deluxe and standard hedge trimmers.

*

Simmons’ Industries – a traditional approach

Assume the following information for the company as a whole and for its only two products—deluxe and standard hedge trimmers.

Ch.7 PPT Additions 3/1/2017

Sheet1

Total estimated manufacturing overhead $ 1,800,000
Total estimated direct labor hours 400,000
Deluxe Standard
Direct materials cost per unit $ 38.00 $ 28.00
Direct labor cost per unit $ 24.00 $ 12.00
Direct labor hours per unit 2.0 1.0
Units produced 100,000 200,000

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Slide *

Appendix 8B

Assuming that Simmons’ traditional cost system relies on one predetermined plantwide overhead rate with direct labor-hours (DLHs) as the allocation base, then its plantwide overhead rate is computed as follows:

$1,800,000
400,000 DLHs

Predetermined
overhead rate

= $4.50 per DLH

=

*

If we assume that Simmons’ traditional cost system relies on one predetermined plantwide overhead rate with direct labor-hours as the allocation base, then its plantwide overhead rate ($4.50 per direct labor-hour) would be computed as shown.

Ch.7 PPT Additions 3/1/2017

McGraw-Hill/Irwin

Slide *

Appendix 8B

Simmons’ traditional cost system would
report unit product costs as follows:

2.0 DLH × $4.50 per DLH

1.0 DLH × $4.50 per DLH

*

Simmons’ traditional cost system would report unit product costs as shown. As you can see, the deluxe product line is assigned $9.00 of overhead cost per unit (2.0 DLH × $4.50 per hour), and the standard product line is assigned $4.50 of overhead cost per unit (1.0 DLH × $4.50 per hour).

Ch.7 PPT Additions 3/1/2017

Sheet1

Total estimated manufacturing overhead $ 1,520,000
Total estimated direct labor hours 400,000
Deluxe Standard
Direct materials cost per unit $ 38.00 $ 28.00
Direct labor cost per unit 24.00 12.00
Manufacturing overhead per unit 9.00 4.50
Unit product cost $ 71.00 $ 44.50

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Slide *

Appendix 8B

The ABC project team at Simmons has
developed the following basic information.

*

Assume that Simmons assigned its $1,800,000 of manufacturing overhead costs to three activities with expected activity levels as shown.

Ch.7 PPT Additions 3/1/2017

Sheet1

Activity and Activity Measures Estimated Overhead Cost Expected Activity
Deluxe Standard Total
Direct labor support (DLHs) $ 900,000 200,000 200,000 400,000
Machine setups (setups) 600,000 400 100 500
Parts administration (part types) 300,000 200 100 300
Total manufacturing overhead $ 1,800,000

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Slide *

Appendix 8B

We can calculate the following activity rates:

Using the new activity rates, let’s assign overhead
to the two products based upon expected activity.

*

The activity rates for each of the three activities would be computed as shown.

Ch.7 PPT Additions 3/1/2017

Sheet1

Activity and Activity Measures Estimated Overhead Cost Total Expected Activity Activity Rate
Direct labor support (DLHs) $ 900,000 ÷ 400,000 = $ 2.25 per DLH
Machine setups (setups) 600,000 ÷ 500 = $ 1,200 per setup
Parts administration (part types) 300,000 ÷ 300 = $ 1,000 per part type
Total manufacturing overhead $ 1,800,000

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Slide *

Appendix 8B

Deluxe Product

Standard Product

*

The overhead cost assignments to the deluxe and standard product lines are computed as shown. Notice that all manufacturing overhead has been assigned to products ($1,130,000 + $670,000 = $1,800,000).

Ch.7 PPT Additions 3/1/2017

Sheet1

Activity and Activity Measures Expected Activity Activity Rate Amount
Direct labor support (DLHs) 200,000 × $ 2.25 = $ 450,000
Machine setups (setups) 400 × $ 1,200 = 480,000
Parts administration (part types) 200 × $ 1,000 = 200,000
Total overhead cost assigned $ 1,130,000

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Sheet1

Activity and Activity Measures Expected Activity Activity Rate Amount
Direct labor support (DLHs) 200,000 × $ 2.25 = $ 450,000
Machine setups (setups) 100 × $ 1,200 = 120,000
Parts administration (part types) 100 × $ 1,000 = 100,000
Total overhead cost assigned $ 670,000

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Slide *

Appendix 8B

Activity-based unit product costs for both product lines

*

The activity-based unit product costs for both product lines would be computed as shown.

Ch.7 PPT Additions 3/1/2017

Sheet1

Total estimated manufacturing overhead $ 1,520,000
Total estimated direct labor hours 400,000
Premium Standard
Direct materials cost per unit $ 38.00 $ 28.00
Direct labor cost per unit 24.00 12.00
Manufacturing overhead per unit 11.30 3.35
Unit product cost $ 73.30 $ 43.35

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Slide *

Appendix 8B

Activity-based unit product costs for both product lines

$1,130,000 ÷ 100,000 units

$670,000 ÷ 200,000 units

*

The manufacturing overhead per unit for both products is computed by taking the total overhead assigned to that product and dividing it by the number of units produced.

Ch.7 PPT Additions 3/1/2017

Sheet1

Total estimated manufacturing overhead $ 1,520,000
Total estimated direct labor hours 400,000
Premium Standard
Direct materials cost per unit $ 38.00 $ 28.00
Direct labor cost per unit 24.00 12.00
Manufacturing overhead per unit 11.30 3.35
Unit product cost $ 73.30 $ 43.35

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Slide *

Appendix 8B

Note that the unit product cost of a Standard unit
decreased from $44.50 to $43.35 . . . . .

. . . . . while the unit cost of a Deluxe unit increased from $71.00 to $73.30.

Comparing the two approaches

*

Simmons Industries – comparing the two approaches

The difference in unit product costs between the two methods is as shown. Notice, the ABC unit product cost for the deluxe (standard) product line is higher (lower) than what was computed using the traditional cost system. This is because:

The ABC system contains two non-volume-related cost pools—“setting up machines,” which is a batch-level activity and “parts administration,” which is a product-level activity.

The ABC system accurately assigned these costs to products in a way that shifted costs from the high volume product (standard) to the low volume product (deluxe).

Ch.7 PPT Additions 3/1/2017

Sheet1

Activity-Based Costing Traditional Costing
Deluxe Standard Deluxe Standard
Direct material $ 38.00 $ 28.00 $ 38.00 $ 28.00
Direct labor 24.00 12.00 24.00 12.00
Manufacturing overhead 11.30 3.35 9.00 4.50
Unit product cost $ 73.30 $ 43.35 $ 71.00 $ 44.50

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Slide *

End of Chapter 7

End of chapter 8.

*

Ch.7 PPT Additions 3/1/2017

Cost/Expenses to be allocated to the Activity Pool

The Numerator

Determine & quantify the activity measure

The Denominator

Compute the activity rate per activity measure unit

The Quotient

Sustaining

Customer

Orders

Design

Changes

Other

Not allocated

Customer

Relations

[# OF

CUSTOMERS]

Order

Size*

[Machine

Hours]

Sales50,000,000$

Cost of goods sold

Direct materials15,000,000$

Direct labor12,000,000

Manufacturing overhead14,000,000 41,000,000

Gross margin9,000,000

Selling and administrative expenses

Shipping expenses3,000,000

Marketing expenses2,000,000

General administrative expenses6,000,000 11,000,000

Net operating incomeoperating loss(2,000,000)$

Baxter Battery Company

Income Statement

Year Ended December 31, 2xx2

Activity Cost PoolActivity Measure

Customer ordersNumber of customer orders

Design changesNumber of design changes

Order sizeMachine-hours

Customer relationsNumber of active customers

OtherNot applicable

Activity Cost Pools at Baxter Battery

Expense [& Cost]

Direct materials15,000,000 Traced through Cost System to products

Direct labor12,000,000 Traced through Cost System to products

Manufacturing overhead14,000,000

Traditional use manufacturing basis to product

chose not to send with products

Shipping expenses3,000,000 Traced to Orders/customer directly through products

Marketing expenses2,000,000

General administrative expenses6,000,000 52,000,000 30,000,000 Cost Sys.22,000,000

totalDirect to Products

Through ABC Pools

Baxter Battery Company

Income Statement

GAAP

Year Ended December 31, 2xx1

Sales50,000,000

Cost of goods sold

DirectDirect materials15,000,000

DirectDirect labor12,000,000

Manufacturing overhead14,000,000 41,000,000

Gross margin [Gross Profit]9,000,000

Selling and administrative expenses

DirectShipping expenses3,000,000

Marketing expenses2,000,000

General administrative expenses6,000,000 11,000,000

Operating loss(2,000,000)

(a)(b)(a) × (b)

Activity Cost PoolsActivity RateActivityABC Cost

Customer orders452.00$ 4,000 1,808,000$

Design changes760.00 - -

Order size [object is Product]6.50 480,000 3,120,000

Total4,928,000$

Overhead Cost for the SureStart

(a)(b)(a) × (b)

Activity Cost PoolsActivity RateActivityABC Cost

Customer orders452.00$ 6,000 2,712,000$

Design changes760.00 4,000 3,040,000

Order size {object is Product}6.50 320,000 2,080,000

Total7,832,000$

Overhead Cost for the LongLife

Customer Orders

4,520,000

Product A

4,928,000

Design changes

3,040,000

Product B

7,832,000

Order Size

5,200,000

SUM

12,760,000

12,760,000

Object is Product; when Object is Customer will take this product cost along

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

SureStartLongLife

Product lineABTotal

Quantity800,000 400,000 1,200,000 A/seachB/each

Sales$31,300,000$18,700,000$50,000,000$39$47

DirectCosts through cost system

Material;$9,000,000$6,000,000$15,000,000$11$15

DL$7,000,000$5,000,000$12,000,000$9$13

Shipping$2,000,000$1,000,000$3,000,000$3$3

Sum$18,000,000$12,000,000$30,000,000$23$30

$13,300,000$6,700,000$20,000,000$17$17

42.5%35.8%40.0%42.5%35.8%

Contribution

margin

[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

-

-

Order size [object is Product]

6.50

480,000

3,120,000

Total

4,928,000

$

[B] LongLife

(a)

(b)

(a) × (b)

Activity Cost Pools

Activity Rate

Activity

ABC Cost

Customer orders

452.00

$

6,000

2,712,000

$

Design changes

760.00

4,000

3,040,000

Order size {object is Product}

6.50

320,000

2,080,000

Total

7,832,000

$

Each

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

6.50

$

Order Size

5,200,000

Mach.Hrs.

SUM

12,760,000

12,760,000

NO

Cust. Relations

$3,080,000

to Products

Activity Level [3]

Money is in the poolSustaining

Pool [1a]

Customer

Orders

Design

changes

Order Size

Customer

Relations

Other

Not allocated

Pool $s [1a] from above4,520,000 3,040,000 5,200,000 3,080,000 6,160,000

ACTIVITY Unit [1b]

Customer

Orders

Design

changes

Machine

Hours

Number of

Customers

Not

allocated

Allocated

Rate: Activity Level [3]

ACTIVITY Unit [1b]

Customer

Orders

Design

changes

Machine

Hours

Number of

Customer

Not

allocated

Z =ACTIVITY Units TO ALLOCATE [1b]10,000 4,000 800,000 2,000 N/A

$Amt. per Activity unit [3]452.00$ 760.00$ 6.50$ 1,540.00$ N/A

Denominator - Qty. of the pool activity = Z

(a)(b)(a) × (b)

Activity Cost PoolsActivity RateActivityABC Cost

Customer orders452.00$ 125,424$

Design changes760.00 43,040

Order size/Machibe Hrs.

6.50 4482,912

Customer relations1,540.00 11,540

Total12,916$

Overhead Cost for Acme Auto Parts

Acme Auto

Parts

Sales29,200$

Direct costs

Direct material7,500

Direct labor6,700

Shipping1,700

$7,500+

$6,700+

$1,700+

$15,900=

Activity Level [3]

Money is in the poolSustaining

Pool [1a]

Customer

Orders

Design

changes

Order Size

Customer

Relations

Other

Not allocated

Pool $s [1a] from above4,520,000 3,040,000 5,200,000 3,080,000 6,160,000

ACTIVITY Unit [1b]

Customer

Orders

Design

changes

Machine

Hours

Number of

Customers

Not

allocated

Allocated

Rate: Activity Level [3]

ACTIVITY Unit [1b]

Customer

Orders

Design

changes

Machine

Hours

Number of

Customer

Not

allocated

Z =ACTIVITY Units TO ALLOCATE [1b]10,000 4,000 800,000 2,000 N/A

$Amt. per Activity unit [3]452.00$ 760.00$ 6.50$ 1,540.00$ N/A

Denominator - Qty. of the pool activity = Z

Acme Auto

Parts

Sales29,200$

Direct costs

Direct material7,500

Direct labor6,700

Shipping1,700

ABC cost assignments [Qty]

Customer orders[12]5,424

Product design [4]3,040

Order size [448 MH]2,912

Customer relations - Qty.11,540

ABC rate6.50$

Machine Hrs448

Assigned $s2,912$

Sales29,200$

Direct costs

Direct material7,500$

Direct labor6,700

Shipping1,700

Customer orders5,424

Product design3,040

Order size2,912

Customer relations1,540 28,816

Customer margin via ABC

384$

Acme Auto Parts

SureStartsLongLifesTotal

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

Production Department

Indirect factory wages6,000,000$

Factory equipment depreciation3,500,000

Factory utilities2,500,000

Factory building lease2,000,000

Total manufacturing overhead14,000,000$

Manufacturing Overhead Costs at Baxter Battery

Machine-hours

SureStarts (800,000 @ 0.60 hours)480,000

LongLifes (400,000 @ 0.80 hours)320,000

Total machine-hours800,000

MachineOverheadOverhead

HoursRateAllocated

SureStarts480,000 17.50$ 8,400,000$

LongLifes320,000 17.50 5,600,000

Total overhead allocated to products14,000,000$

Customer

Orders

Design

changes Order Size

Customer

Relations Other

Total

Production Department

Indirect factory wages1,800,000$ 1,800,000$ 1,200,000$ 600,000$ 600,000$ 6,000,000$

Factory equipment depreciation700,000 350,000 2,100,000 - 350,000 3,500,000

Factory utilities- 250,000 1,500,000 - 750,000 2,500,000

Factory building lease- - - - 2,000,000 2,000,000

General Administrative Department

Administrative wages and salaries1,200,000 400,000 400,000 1,200,000 800,000 4,000,000

Office equipment depreciation270,000 90,000 - 180,000 360,000 900,000

Administrative building lease- - - - 1,100,000 1,100,000

Marketing Department

Marketing wages and salaries450,000 150,000 - 750,000 150,000 1,500,000

Selling expenses100,000 - - 350,000 50,000 500,000

Total4,520,000$ 3,040,000$ 5,200,000$ 3,080,000$ 6,160,000$ 22,000,000$

Activity Cost Pools

Customer

Orders

Design

Changes Order Size

Customer

Relations Other

Total Activity 10,000 4,000 800,000 2,000 N/A

Production Department

Indirect factory wages180$ 450.00$ 1.50$ 300$

Factory equipment depreciation70 87.50 2.63 -

Factory utilities- 62.50 1.88 -

Factory building lease- - - -

General Administrative Department

Administrative wages and salaries120 100.00 0.50 600

Office equipment depreciation27 22.50 - 90

Administrative building lease- - - -

Marketing Department

Marketing wages and salaries45 37.50 - 375

Selling expenses10 - - 175

Total452$ 760.00$ 6.50$ 1,540$

Activity Cost Pools

Customer

Orders

Design

Changes Order Size

Customer

Relations Total

Total activity for batteries 4,000 - 480,000 N/A

Production Department

Indirect factory wages720,000$ -$ 720,000$ 1,440,000$

Factory equipment depreciation280,000 - 1,260,000 1,540,000

Factory utilities- - 900,000 900,000

Factory building lease- - - -

General Administrative Department- -

Administrative wages and salaries480,000 - 240,000 720,000

Office equipment depreciation108,000 - - 108,000

Administrative building lease- - - -

Marketing Department- -

Marketing wages and salaries180,000 - - 180,000

Selling expenses40,000 - - 40,000

Total1,808,000$ -$ 3,120,000$ 4,928,000$

Action Analysis Cost Matrix for SureStart Batteries

Activity Cost Pools

Customer

Orders

Design

Changes Order Size

Customer

Relations Total

Total activity for battery housing 6,000 4,000 320,000 N/A

Production Department

Indirect factory wages1,080,000$ 1,800,000$ 480,000$ 3,360,000$

Factory equipment depreciation420,000 350,000 840,000 1,610,000

Factory utilities- 250,000 600,000 850,000

Factory building lease- - - -

General Administrative Department- -

Administrative wages and salaries720,000 400,000 160,000 1,280,000

Office equipment depreciation162,000 90,000 - 252,000

Administrative building lease- - -

Marketing Department- -

Marketing wages and salaries270,000 150,000 - 420,000

Selling expenses60,000 - - 60,000

Total2,712,000$ 3,040,000$ 2,080,000$ 7,832,000$

Action Analysis Cost Matrix for LongLife Batteries

Activity Cost Pools

Sales18,700,000$

Green costs

Direct materials6,000,000$

Shipping costs1,000,000 7,000,000

Green margin11,700,000$

Yellow costs

Direct labor5,000,000

Indirect factory wages3,360,000

Factory utilities850,000

Administrative wages and salaries1,280,000

Office equipment depreciation252,000

Marketing wages and salaries420,000

Selling expenses60,000 11,222,000

Yellow margin478,000$

Red costs

Factory equipment depreciation1,610,000

Factory building lease-

Administrative building lease- 1,610,000

Red margin(1,132,000)$

Action Analysis of LongLife Batteries

Total estimated manufacturing overhead1,800,000$

Total estimated direct labor hours400,000

DeluxeStandard

Direct materials cost per unit38.00$ 28.00$

Direct labor cost per unit24.00$ 12.00$

Direct labor hours per unit2.0 1.0

Units produced100,000 200,000

DeluxeStandard

Direct materials cost per unit38.00$ 28.00$

Direct labor cost per unit24.00 12.00

Manufacturing overhead per unit9.00 4.50

Unit product cost71.00$ 44.50$

Activity and Activity Measures

Estimated

Overhead

Cost

DeluxeStandardTotal

Direct labor support (DLHs)900,000$ 200,000 200,000 400,000

Machine setups (setups)600,000 400 100 500

Parts administration (part types)300,000 200 100 300

Total manufacturing overhead1,800,000$

Expected Activity

Activity and Activity Measures

Estimated

Overhead

Cost

Total

Expected

Activity

Direct labor support (DLHs)900,000$ ÷400,000 =2.25$ per DLH

Machine setups (setups)600,000 ÷500 =1,200$ per setup

Parts administration (part types)300,000 ÷300 =1,000$ per part type

Total manufacturing overhead1,800,000$

Activity Rate

Activity and Activity Measures

Expected

Activity

Activity

Rate

Direct labor support (DLHs)200,000

×

2.25$ =450,000$

Machine setups (setups)400

×

1,200$ =480,000

Parts administration (part types)200

×

1,000$ =200,000

Total overhead cost assigned1,130,000$

Amount

Activity and Activity Measures

Expected

Activity

Activity

Rate

Direct labor support (DLHs)200,000

×

2.25$ =450,000$

Machine setups (setups)100

×

1,200$ =120,000

Parts administration (part types)100

×

1,000$ =100,000

Total overhead cost assigned670,000$

Amount

PremiumStandard

Direct materials cost per unit38.00$ 28.00$

Direct labor cost per unit24.00 12.00

Manufacturing overhead per unit11.30 3.35

Unit product cost73.30$ 43.35$

DeluxeStandardDeluxeStandard

Direct material38.00$ 28.00$ 38.00$ 28.00$

Direct labor24.00 12.00 24.00 12.00

Manufacturing overhead11.30 3.35 9.00 4.50

Unit product cost73.30$ 43.35$ 71.00$ 44.50$

Activity-Based CostingTraditional Costing