ACC 212 Lecture Notes - Lecture 2: Earnings Before Interest And Taxes, Fixed Cost, Cost Driver

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ceruleanimpala433

13 Apr 2016

School

University of Miami

Department

Accounting Business Administration

Course

ACC 212

Professor

Mario Perez

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Document Summary

Co"s total expenses = ixed expenses + variable. Y = a + bx (b= var cost/ unit, x= acivity/# units) Y = total expenses = found in inc stmnt. Format: sales revenue, less: cogs, variable expenses = contribuion margin, sales and cogs and var expenses = dependent on acivity, less: fixed expenses, = operaing income. 2 methods that can be used to calculate the cost per unit (job) Job order cosing: keep track of the costs of each individual item/job b. Job cost spreadsheet: tracks: direct materials, direct labor and manu overhead allocated c. Small amount, unique items: process order cosing, at end of period we calculate the average cost per unit/job, easier for large amounts of goods/svcs being produced. If actual > allocated: bad news, bc it means we under applied costs, will need to make a journal entry for the diference, diference goes to cogs (will increase the expense debited) & proit v c.

Related Questions

Data P2Part II-1:

Morrisey & Brown is amerchandising company that is the sole distributor of aproduct
that is increasing inpopularity among consumers. The company's income statements
for the three most recentmonths follow:
MORRISEY & BROWN,LTD.
Income Statements
For the Three Months EndedSeptember 30

	July	August	Sept
Sales in units	4,000	4,500	5,000
Sales revenue	$400,000	$450,000	$500,000
Less cost of goods sold	240,000	270,000	300,000
Gross margin	160,000	180,000	200,000
Less operating expenses:
Advertising expense	21,000	21,000	21,000
Shipping expense	34,000	36,000	38,000
Salaries and commissions	78,000	84,000	90,000
Insurance expense	6,000	6,000	6,000
Depreciation expense	15,000	15,000	15,000
Total operating expenses	154,000	162,000	170,000
Net operating income (loss)	$6,000	$18,000	$30,000



Required:
1. Identify each of thecompany's expenses (including cost of goods sold) as eithervariable, fixed, or mixed.
2. Using the high-low method,separate each mixed expense into variable and fixed elements.
3. Redo the company's incomestatement at the 5,000 unit-level of activity using thecontribution margin
format.

ambertoad363

EXERCISE 2-14 High-Low Method; Predicting Cost [L02-4, LO2-5] The Lakeshore Hotel's guest-days of occupancy and custodial supplies expense over the last seven months were: Guest-Days of Occupancy Custodial Supplies Expense Month March ....... April May June ...... July ........ August September ...... 4,000 6,500 8,000 10,500 12,000 9,000 7,500 $7,500 $8,250 $10,500 $12,000 $13,500 $10,750 $9,750 . . . . . . Guest-days is a measure of the overall activity at the hotel. For example, a guest who stays at the hotel for three days is counted as three guest-days. Required: 1. Using the high-low method, estimate a cost formula for custodial supplies expense. 2. Using the cost formula you derived above, what amount of custodial supplies expense would you expect to be incurred at an occupancy level of 11,000 guest-days? 3. Prepare a scattergraph using the data given above. Plot custodial supplies expense on the ver- tical axis and the number of guest-days occupied on the horizontal axis. Draw a straight line 4. through the two data points that correspond to the high and low levels of activity. Make sure your line intersects the Y-axis. Comment on the accuracy of your high-low estimates assuming a least-squares regression analysis estimated the total fixed costs to be $3,973.10 per month and the variable cost to be $0.77 per guest-day. How would the straight line that you drew in requirement 3 differ from a straight line that minimizes the sum of the squared errors? Using the least-squares regression estimates given in requirement 4, what custodial supplies expense would you expect to be incurred at an occupancy level of 11,000 guest-days? 5. Net operating income. $ 6,000 $ 18,000 $ 30,000 Required: 1. Identify each of the company's expenses (including cost of goods sold) as either variable, fixed, or mixed. 2. Using the high-low method, separate each mixed expense into variable and fixed elements. State the cost formula for each mixed expense. 3. Redo the company's income statement at the 5,000-unit level of activity using the contribution format.

Check My Work eBook Cornerstone Exercise 17.2 (Algorithmic) Keep-Or-Drop Decision, Alternatives, Relevant Costs Reshier Company makes three types of rug shampooers. Model 1 is the basic model rented through hardware stores and supermarkets. Model 2 is a more advanced model with both dry-and wet-vacuuming capabilities. Model 3 is the heavy-duty riding shampooer sold to hotels and convention centers. A segmented income statement is shown below. Model 1 Model 2 Model 3 Total Sales $270,000 $594,000 $616,000 $1,480,000 Less variable costs of goods sold (94,000) (158,800) (334,000) (586,800) Less commissions (4,500) (33,000) (19,500) (57,000) Contribution margin $171,500 $402,200 $262,500 $836,200 Less common fixed expenses: Fixed factory overhead (405,000) Fixed selling and administrative (295,000) Operating income $136,200 While all models have positive contribution margins, Reshier Company is concerned because operating income is less than 10 percent of sales and is low for this type of company. The companyâs controller gathered additional information on fixed costs to see why they were so high. The following information on activities and drivers was gathered: Driver Usage by Model Activity Activity Cost Activity Driver Model 1 Model 2 Model 3 Engineering $81,000 Engineering hours 740 73 187 Setting up 200,000 Setup hours 12,400 12,000 29,187 Customer service 113,000 Service calls 13,700 1,480 19,187 In addition, Model 1 requires the rental of specialized equipment costing $19,000 per year. Required: Hide 1. Reformulate the segmented income statement using the additional information on activities. Use a minus sign to indicate any negative margins. Do NOT round interim calculations and, if required, round your answer to the nearest dollar. Reshier Company Segmented Income Statement Model 1 Model 2 Model 3 Total $ $ $ $ Contribution margin $ $ $ $ Less traceable fixed expenses: Product margin $ $ $ $ Less common fixed expenses: Operating income $ 2. Using your answer to Requirement 1, assume that Reshier Company is considering dropping any model with a negative product margin. What are the alternatives? Which alternative is more cost effective and by how much? (Assume that any traceable fixed costs can be avoided.) Do NOT round interim calculations and, if required, round your answer to the nearest dollar. will add $ to operating income 3. What if Reshier Company can only avoid 160 hours of engineering time and 4,800 hours of setup time that are attributable to Model 1? How does that affect the alternatives presented in Requirement 2? Which alternative is more cost effective and by how much? Do NOT round interim calculations and, if required, round your answer to the nearest dollar. will add $ to operating income

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ACC 212 Lecture Notes - Lecture 2: Earnings Before Interest And Taxes, Fixed Cost, Cost Driver

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