ACTG 2300 Final: Exam 2 SG

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Traditional
+ Sales Revenues
- Cost of Goods Sold
= Gross Margin
- Selling, General, Administrative Expenses
= Operating Income
Contribution
+ Total Revenues
- TVC
= Contribution Margin
- TFC
= Operating Income
COGS = beg. Inv. + purchases end. Inv.
ACTUAL COSTING
Total Factory Overhead / Total Allocation Bases = Manufacturing Overhead Rate
Manufacturing Overhead Rate * Actual Allocation Base incurred by each Cost Object
= Manufacturing Overhead Applied
NORMAL COSTING
Total ESTIMATED Manufacturing Overhead / Total ESTIMATED Allocation Base =
PREDETERMINED Manufacturing Overhead Rate
PREDETERMINED Manufacturing Overhead Rate * ACTUAL Allocation Base
incurred by each Cost Object = Manufacturing Overhead Applied
Allocation Base
Difference between the Manufacturing Overhead Cost Applied (MOCA) and
the Actual Manufacturing Overhead Cost (AMOC)
Overallocation
Manufacturing Overhead APPLIED > ACTUAL Manufacturing Overhead
Underallocation
Manufacturing Overhead APPLIED < ACTUAL Manufacturing Overhead
Non-Relevant Allocation Balance
If not a large difference between Applied and Actual
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Must adjust
o Overallocation = decrease COGS
o Underallocation = increase COGS
Relevant Allocation Balance
Overallocation - DECREASE
o COGS
o Finished Goods (FG) inventory
o Work in Progress (WIP) inventory
Underallocation - INCREASE
o COGS
o Finished Goods (FG) inventory
o Work in Progress (WIP) inventory
BEP
1. In units = TFC / UCM
2. In $ = TFC / CM Ratio
CM Ratio = CM / TR = UCM / P = (TCM/V) / P = (P-UVC) / P
Margin of Safety
DEF: How safe a company is
1. In Units
a. Actual V BEP in V
2. In $
a. Actual TR BEP in $
Degree of operating leverage (DOL)
= % Change of OI / % Change of V
OR = TCM / OI
Target Volume
TV = TFC + TFT OI
UCM
Target Revenue
TR = TFC + TGT OI
CM Ratio
ROS = TR / OI
Absorption vs. Variable Costing
Absorption (traditional)
o Unit Product Cost = DL + DM + VMOH + FMOH
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Variable (contribution method)
o Unit Product Cost = DL + DM + VMOH
o Use when Decision Making
ABC
1. Identify the activities
a. How to go about identifying
2. Determine the Activity Cost pools
3. Compute the Activity Cost Driver Rates (cost pool / total cost driver)
a. $ / machine hour?
4. Allocate the Activity OH Cost to the Cost Objects (cost driver of product * Cost
Driver Rate)
a. $
Resources
Support DL
Order
Processing
Customer
Support
Total
+Wages &
Salaries
(.4*300,000) =
120,000
(.3*300,000) =
90,000
(.3*300,000) =
60,000
300,000
+Other OH
Costs
(.3*100,000) =
30,000
(.1*100,000) =
10,000
(.2*100,000) =
20,000
100,000
=Total Activity
Cost Pool
150,000
100,000
80,000
/Total Activity
Cost Driver
20,000 (DL
hours)
400 (# of
customers)
200 (# of
customers)
=Activity Cost
Driver Rate
$7.5 per DL
hours
$250 per
customer
order
$400 per
customer
ABC Statement
+Revenues = 10 units * $300 per unit = $3,000
-Expenses =
a. Supporting DL =
i. MOH = $7.5 per DL hours * (10 units * 2 DL hours/unit) = $150
b. Order Processing =
i. MOH = $250 per order * 1 order = $250
c. Customer Support =
i. MOH = $400 per customer * 1 customer = $400
d. DM = 180 per unit * 10 units = $1,800
e. DL = 50 per unit * 10 units = $500
= Customer Margin = (100)
Business Decisions
1. Dropping Products
FORMULA
Keep when >
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