ACC 406 Lecture Notes - Lecture 6: Earnings Before Interest And Taxes, Fixed Cost

169 views2 pages

ultramarineprairie-dog882

15 Feb 2017

School

Department

Course

Professor

For unlimited access to Class Notes, a Class+ subscription is required.

Document Summary

Prime costs = direct material + direct labour = a then. Prime costs per unit= a / (units produced) Beginning materials inventory + purchases ending materials inventory= Total cost = total fixed cost + total variable cost. Variable rate = high point cost low point cost. Total revenue total cost = zero profit. Variable cost ratio = variable cost per unit. Contribution margin ratio = contribution margin per unit. Number of units to earn target income = Sales in dollars to earn target income = Margin of safety in units= sales in units break- even units. Margin of safety in sales revenue= sales break-even units. Percent change in operating leverage = dol x percent change in sales. Overhead rate = overhead / direct labour cost. = predetermined overhead rate x actual activity level. Applied overhead = plantwide overhead x actual activity level.

Related Questions

Show your work

Preparing a Comprehensive Budget

Ginnie Springs Company has been bottling and selling water since1940. The companyâs current owner would like to know how a newproduct would affect the companyâs rent income in the comingyear.

Required

Calculate Ginnie Springs net income for the new product in thecoming year by completing the operating budgets and budgeted incomestatement that follow. Assume that the selling price will remainconstant.

Sales budget

Ginnie Springs Company

Sales Budget

Forthe year Ended December 31

Quarter

	1	2	3	4	Year
Sales in Units	40,000	30,000	50,000	55,000	175,000
Selling price per unit	X $1	X ?	X ?	X ?	X ?
Totals Sales	40,000	$ ?	X ?	X ?	X ?

2. Production Budget:

Ginnie SpringsCompany

ProductionBudget

For the year Ended December31_____________

Quarter

	1	2	3	4	Year
Sales in Units	40,000	?	?	?	?
Plus desired units of ending finished goods inventory*	30,000	?	?	6000	6000
Desired total Units	43000	?	?	?	?
Less desired units of ending finished goods inventory*	4000	?	?	?	4000
Total Production units	39,000	?	?	?	?

*Desired units of ending finished goods inventory = 10% of nextquarterâs budgeted production needs in ounces. Desired ounces ofbeginning direct materials inventory = 20% of current quartersbudgeted production needs in ounces.

3.DirectMaterials Purchases budget

Ginnie SpringsCompany

Direct Materials PurchaseBudget

For the year Ended December31_____________

Quarter

	1	2	3	4	Year
Total production units	39,000	32,000	50,500	55,500	?
Ounces per unit	X 20	X 20	X 20	X 20	X 20
Total production needs in ounces	780,000	?	?	?	?
Plus desired ounces of ending direct materials inventory*	128,000 908,000	? ?	? ?	240,000 ?	240,000 ?
Less desired ounces of ending direct materials inventory*	156,000	?	?	?	156,000
Total ounces of direct material to be purchased	752,000	?	?	?	?
Cost per ounce	X $0.01	X ?	X ?	X ?	X ?
Total cost of direct materials purchases	$7520	?	?	?	?

Desired ounces of ending direct material inventory =20% of nextquarters budgeted production needs in ounces.

Desired ounces of beginning direct materials inventory = 20% ofcurrent quarters budgeted production needs in ounces.

4.Directlabor budget:

Ginnie SpringsCompany

Direct LaborBudget

For the year EndedDecember 31_____________

Quarter

	1	2	3	4	Year
Total production units	39,000	?	?	?	?
Direct labor hours per units	X 0.001	X ?	X ?	X ?	X ?
Total direct labor hours	39.0	?	?	?	?
Direct labor cost per hour	X $8	X ?	X ?	X ?	X ?
Total direct labor cost	$312	$ ?	$ ?	$ ?	$ ?

5.Overheadbudget

Ginnie SpringsCompany

Overhead Budget

For the year EndedDecember 31_____________

Quarter

	1	2	3	4	Year
Variable overhead costs:
Factory supplies ($0.01)	$ 390	$ ?	$ ?	$ ?	$ ?
Employee benefits ($0.05)	1,950	?	?	?	?
Inspection ($0.01)	390	?	?	?	?
Maintenance and repairs($0.02)	780	?	?	?	?
Utilities ($0.01)	390	?	?	?	?
Total Variable overheadcosts	$3900	$ ?	$ ?	$ ?	$ ?
Total fixed overhead costs	1416	?	?	?	?
Total overhead costs	$5,316	$ ?	$ ?	$ ?	$ ?

Note: The figures in parentheses are variable costs perunit.

6.Sellingand administrative expenses budget:

Ginnie SpringsCompany

Selling and Administrative Expenses Budget

For the year EndedDecember 31_____________

Quarter

	1	2	3	4	Year
Variable Selling and Administrative expenses
Delivery expenses ($0.01)	$ 400	$ ?	$ ?	$ ?	$ ?
Sales Commission ($0.02)	800	?	?	?	?
Accounting ($0.01)	400	?	?	?	?
Other administrative expenses($0.01)	400	?	?	?	?
Total Variable selling and administrative exp.	$2,000	$ ?	$ ?	$?	$?
Total fixed selling and administrative exp.	5000	?	?	$?	?
Total selling and administrative expenses	$ 7,000	$ ?	$ ?	$ ?	$ ?

Note: The figures in parentheses arevariable costs per unit

7. Cost of goods manufactured budget:

Ginnie SpringsCompany

Cost of Goods Manufactured Budget

For the year EndedDecember 31_____________

Direct Material Used:

Direct Material Inventory,Beginning

Purchases

Cost of Direct materials available foruse

Less: Direct materials Inventory,ending

Cost of Direct Materialsused

Direct laborcosts:

Overhead costs:

Total manufacturing costs

Work in Process Inventory,beginning*

Less: work in process inventory,ending*

Cost of Goods Manufactured

Units produced

Manufactured cost perunit

It is the companyâs policy to have no units in process at theend of theyear.

8. Budgeted income statement

Ginnie Springs Company

Selling and Administrative Expenses Budget

For the year EndedDecember 31_____________

Sales

Cost of goods sold

Finished goods inventory beginning

Cost of goods manufactured

Cost of Goods available for sale

Less finished goods inventory, ending

Cost of good sold

Gross margin

Selling and administrative expenses

Income from operations

Income taxes expenses (30% tax rate)

Net Income

lemonhamster976

EXERCISE 6-14 Variable Costing Unit Product Cost and Income Statement; Break-Even [L06-1, L06-2] Chuck Wagon Grills, Inc., makes a single product-a handmade specialty barbecue grill that it sells for $210. Data for last year's operations follow: 20,000 19,000 1,000 Units in beginning inventory ......... Units produced ........... Units sold ........ Units in ending inventory .... Variable costs per unit: Direct materials ............ Direct labor ........... .......... Variable manufacturing overhead ...... Variable selling and administrative ..... Total variable cost per unit. $ 50 $160 Fixed costs: Fixed manufacturing overhead .. ........ Fixed selling and administrative .................. Total fixed costs .............................. $700,000 285,000 $985,000 Required: 1. Assume that the company uses variable costing. Compute the unit product cost for one barbe- cue grill. 2. Assume that the company uses variable costing. Prepare a contribution format income state- ment for the year. 3. What is the company's break-even point in terms of the number of barbecue grills sold?

Genuine Spice Inc. began operations on January 1, 2016. Thecompany produces eight-ounce bottles of hand and body lotion calledEternal Beauty. The lotion is sold wholesale in 12-bottle cases for$100 per case. There is a selling commission of $20 per case. TheJanuary direct materials, direct labor, and factory overhead costsare as follows:

DIRECT MATERIALS
	Cost Behavior	Units per Case	Cost per Unit	Cost per Case
Cream base	Variable	100 ozs.	$0.02	$ 2.00
Natural oils	Variable	30 ozs.	0.30	9.00
Bottle (8-oz.)	Variable	12 bottles	0.50	6.00
				$17.00
DIRECT LABOR
Department	Cost Behavior	Time per Case	Labor Rate per Hour	Cost per Case
Mixing	Variable	20 min	$18.00	$6.00
Filling	Variable	5	14.40	1.20
		25 min.		$7.20

FACTORY OVERHEAD
	Cost Behavior	Total Cost
Utilities	Mixed	$600
Facility lease	Fixed	14,000
Equipment depreciation	Fixed	4,300
Supplies	Fixed	660
		$19,560

Part AâBreak-Even Analysis

The management of Genuine Spice Inc. wishes to determine thenumber of cases required to break even per month. The utilitiescost, which is part of factory overhead, is a mixed cost. Thefollowing information was gathered from the first six months ofoperation regarding this cost:

2016	Case Production	Utility Total Cost
January	500	$600
February	800	660
March	1,200	740
April	1,100	720
May	950	690
June	1,025	705

Required

1. Determine the fixed and variable portion of the utilitycost using the high-low method.

	At high point	At low point
Variable cost	$	$
Total fixed Cost	$500	$
Total Cost	$740	$600

2- Prepare the August factory overhead budget

Genuine Spice Inc.
Factory OverheadBudget
For the Month EndedAugust 31, 2016

	Fixed	Variable	Total
Factory overhead:
Utilities	$500	$	$
Facility lease	14000		14000
Equipment depreciation	4300		4300
Supplies	660		660
Total	$19460		$

3- Prepare the August budgeted income statement, includingselling expenses. Enter all amounts as positive numbers. NOTE:Because you are not required to prepare a cost of goods soldbudget, the cost of goods sold calculations will be part of thebudgeted income statement.

Genuine Spice Inc.

Budgeted IncomeStatement

For the Month Ended August 31, 2016

Sales			$
Finished goods inventory, August 1		$
Direct materials inventory, August 1	$
Direct materials purchases
Less direct materials inventory, August 31
Cost of direct materials for production	$
Direct labor
Factory overhead
Less finished goods inventory, August 31
Cost of goods sold
Gross profit
Selling expenses			$
Income before income tax			$

ochrereindeer889

ACC 406 Lecture Notes - Lecture 6: Earnings Before Interest And Taxes, Fixed Cost

Document Summary

Get access

Related Documents

ACC 406 Study Guide - Stabilisation Force In Bosnia And Herzegovina, Safety Stock, Net Present Value

ACC 406 Lecture Notes - Lecture 1: Lead Time, Contribution Margin, Stabilisation Force In Bosnia And Herzegovina

ACC 406 Lecture Notes - Lecture 2: Management Accounting, Indirect Costs, Fixed Cost

Related Questions