comm 294 midterm r session questions
TRANSCRIPT
COMM294MIDTERMREVIEWSESSION–QUESTIONS
BYLINHVO
TABLEOFCONTENT
I. IntroductionII. Costterms,concepts,classificationandCost
Behaviour(Chap.2,3)III. Job-orderCosting(Chap.5)
--------------BREAK--------------IV. ActivityBasedCosting(Chap.7)V. Cost-Volume-Profit(CVP)Analysis(Chap.4)VI. GeneralTipsandTricks
I. INTRODUCTIONLinhVo
4thyearAccounting
SauderJDCWestCompetitor,2017
PwCTaxSummerAssociate,2016
II. COSTTERMS,CONCEPTS,CLASSIFICATIONANDCOSTBEHAVIOUR
• ManufacturingCosts:
o DirectMaterials:rawmaterialsthatcanbetraceddirectlyfromfinishedproducts(e.g.sugar,spiceandeverythingniceforThePowerpuffGirls,orcandies)
o DirectLabour:wagespaidtoworkersthatcanbeeasilytracedtoeachunitofaproduct(e.g.professorUtonium,WillyWonka)
o ManufacturingOverhead:cannotbetraceddirectlytoeach
ManufacturingCosts
DirectMaterials(DM)
DirectLabour(DM)
ManufacturingOverhead(MOH)
Non-manufacturing
Costs
SellingCosts
AdministrativeCosts
PrimeCost
ConversionCost
ProductCost
PeriodCost
DirectCost
IndirectCost
unitofaproduct–indirectlabour(MojoJojo),indirectmaterial(mixingbowlsforcandies),others(labrental,electricity)
=ProductCostso Allcostsincurredwhenacquiringormakingtheproducto RecordedasInventorywhenincurred
• Non-manufacturingCosts:o SellingCosts:coststomarketanddelivertheproducts(e.g.commission,advertising)
o AdministrativeCosts:executive,organizationalandclericalcosts(e.g.wagesformayor’sreceptionist)
=PeriodCostso Selling,generalandadministrativecostso RecordedasExpensewhenincurred
• Howaboutidletimeandovertimepremium?o Ifitcanbetracedtoaproduct:directlabourcosto Ifnot:manufacturingoverhead
DirectCosts:
o Costscanbetraceddirectlytoaproducto E.g.directmaterial,directlabour
Non-DirectCosts
o Costscannotbetraceddirectlytoaproducto E.g.manufacturingoverhead
Sunkvs.Opportunitycosts:
• SunkCosts:costsincurredinthepastandcannotbechangednow.Ignore.(e.g.non-refundablepurchases)
• OpportunityCosts:thepotentialbenefitofthesecondoptionthatyougiveuptochoosethefirstoption(e.g.potentialwagesifyoudon’tworkandgotoschoolinstead)
Variablevs.Fixedvs.MixedCosts
• VariableCosts:totalvariablecostsincreaseexactlythesameamountforeachunitproduced
• FixedCosts:totalfixedcostsremainthesamedespitethenumberofunitproduced
• Step-fixedCosts:costsstaythesamewithinarelevantrangeofunitsproduced,butitwillincreasewhenyouproduceonemoreunitabovethatrange
• MixedCosts:coststhatincludebothfixedandvariablecosts(e.g.cellphoneplan)o Toseparatemixedcostsintofixedandvariableportions,weuseHi-LoMethod
Note:Outliershouldbeeliminated
Question1:Pleaseclassifythesecosts
ProductCosts Period
Costs Direct IndirectCostdescription VC FC DM DL MOH SG&A Opp. SunkWagesofworkerswhoassembleproducts
Supervisor'ssalarytosupervisemultipleproducts
Materialsforproducingbottles,at$5/unit
Saleofficerental,at$1,000/month
Productionbuildingrental,at$5000/month
Warehouserental,$2000/month
Depreciationofbuilding,$7,000/year
Shippingcost,$7/unit
Incomefrominvestment,$5000/year
Electricitycost,$4/unit
Question2:PowerpuffGirlsdecidetoselllemonadetoraisemoneytosendMojoJojobacktoschool.Thesearethefinancialdatafromacompetinglemonadestand.
Month Jars/Month AverageCostsperJar TotalCostsMarch 15,000 $1.7 June 20,000 $1.4
September 10,000 $1.9 December 8,000 $2.5
a) PleasehelpPowerpuffGirlspredictthetotalcostiftheywanttosell18,000masonjarsoflemonade
1. ConvertAverageCostsperJar2. Identifyoutlier:
3. Findthehighestandlowestcost/activitylevels:
4. UseHi-Lotoestimatedvariablecostperjar:
5. Calculatingfixedcost:
6. Estimatingformula:
7. Predictthetotalcostat18,000jars:
b)Howabout22,000jars?
III. JOB-ORDERCOSTING• ProcessCosting:assignthesameaveragecostperunitforallunitsduetolargevolumeofsimilarproducts(e.g.cokes)
• Job-orderCosting:assigncosttoeachorderduetotheuniquenatureofeachorder(e.g.aircraft)
Okay,butfirst…Understanding“Inventory”accountintheBalanceSheet
BeginningInventory
Costofgoods
manufactured
Costofgoodssold
EndingInventory
TotalManufacturingCosts(NewWIP)
+WIPBeginning
-WIPEnding
=CostofGoodsManufactured
DirectMaterial
+DirectLabour
+ManufacturingOverhead
=TotalManufacturingCosts(NewWIP)
BeginningMaterial
+PurchasesofMaterial
-EndingMaterial
=DirectMaterialusedinProduction
CostofGoodsAvailableforSale(FinishedGoods)
Question3:Powerpufflemonadeisnowaworldwidephenomenon.Thecompanygrowsfast,sotheyhireyoutoadviseonthecostsandifthecompanyshouldacceptaneworder.Buttercup,thecontroller,givesyoutheBalanceSheet
February28th March31RawMaterial 20,000 ?Otherinformation:
• SalerevenueforMarchwas$100,000• Theysold15,000jarsinMarch• Profitmarginis25%ontopofCostofGoodSold• Ittakes10minutestomakeajaroflemonade,andthewageis$10/hour
• Powerpuffappliesoverheadatapredeterminedrateof50%ofdirectlabourcost
• ActualoverheadincurredinMarchwas$15,000,andoverheadwasover-appliedby$2,500
• Purchaseofdirectmaterialwas$40,000• DirectMaterialUsedwas$59,000• OnFebruary28th,thecompanyhas1250jarslefttosell,attheunitcostof$6perjar
• ThecompanysellsallofitproductonMarch31
Pleasecalculate:COGS,Directlabourcost,COGM,EndInventory,EndDirectMaterial.
1. CostsofGoodSold
2. Directlabourcost
3. COGM
4. Endingbalanceofinventory
5. EndDM
EstimatedCostofaNeworder
=DirectMaterial+DirectLabour+ManufacturingOverhead
HowdoweapplyManufacturingOverheadtoaneworder?
1.Setapredeterminedoverheadrate(PDOHR)
ü Determinewhatdrivesoverheadcost(e.g.directlabourhour,machinehour,batch,customer)
ü Determinetheestimatedtotaloverheadfortheupcomingperiod
2.ApplyMOHbasedontheactualactivity(e.g.actualdirectlabourhourthatwasusedintheperiod)
AppliedOH=PDOHRxActualActivity
3.ComparewithactualoverheadcostintheperiodtodetermineiftheMOHisover-appliedorunder-applied
Ifover-applied(MOHincurred<AppliedOH),ifimmaterial(<5%),thendecreaseCOGSifmaterial,thendecreaseCOGS,Inventory,WIPproportionately
Ifunder-applied(MOHincurred>AppliedOH),
ifimmaterial(<5%),thenincreaseCOGSifmaterial,thenincreaseCOGS,Inventory,WIPproportionately
Question4:Buttercupaccidentallylosttheappliedmanufacturingoverheadrecord.PleasehelpherdeterminetheappliedMOHandadviseherwhattodoifit’sover/under-applied.
• MOHisappliedbasedonthenumberofhoursusedtosqueezelemonadeandpackageit.
• ButtercupestimatedthatinMarch,wewillneed4000hours.• TheMOHbudgetis$20,000• TotalhourusedinMarchis3500hours• IndirectlabourinMarchis$4,000,indirectmaterialis$5,000,balanceofMOHatthebeginningofMarchis$2,000
• Amortization:$1,000;Electricity:$500;Insurance:$1,000;Maintenance:$1,500
IV. ACTIVITY-BASEDCOSTINGActivity-basedcosting:assignscosts(MOH)basedonactivity,ratherthanorderordepartment.The“allocationbase”maydifferbasedonthenatureoftheactivities(e.g.manufacturingline–MOHbasedonmachinehour;assemblyline–MOHbasedonlabourhour)
Question5:ButtercupfinallyfoundthebreakdownofdifferentoverheadthatPowerpuffincurred:ShipmenttoVictoriaviaferry:$2,000(5ferrytrips)Personalizedmessagesonjars:$500(100orderswithmessages)Hiringandtrainingemployees:$5,000(10newemployees)Directmaterial:$300,Directlabour:$10
ShouldPowerpuffagreetoapersonalizedordertoVictoriaat$550?
1. Identifytheactivities2. Identifythecostdriverforeachoftheactivity3. Calculatetherateperactivity4. Allocatetheoverheadcostbasedontheratecalculated5. Usethecostbreakdownfordecisionmaking
V. COST-VOLUME-PROFITANALYSISContributionMargin
Sales–VariableCosts=ContributionMargin
or
Sellingpriceperunit–VariableCostperunit=CMperunit
ContributionRatio
𝐶𝑜𝑛𝑡𝑟𝑖𝑏𝑢𝑡𝑖𝑜𝑛𝑀𝑎𝑟𝑔𝑖𝑛𝑆𝑎𝑙𝑒𝑠
Break-EvenAnalysis
1 CVPGraph
2 EquationMethod
TargetProfits=Sales–VariableCosts–FixedCosts=0
3 ContributionMarginMethod
MarginofSafetyinDollars=Sales–Break-evenSales
in%=1234567842964:4;1234512345
OperatingLeverage
DegreeofOperatingLeverage= <=;>8?@A>?=;B28C?;D4>EF482>?;CG;H=I4
Question7:PowerpuffwantstoexpandtheiroperationtoCalgary.Salesispredictedtobe20,000jarsayearat$10perjar.Theypredictthecost:
- Factoryrental:$1,600/month- Labourcost:$2/jar- Materialcost:$3/jar- Variableoverhead:$2.5/jar
• KLMNOPQRSRTUVWXNSYWQZLSP[\NW]^LS
Break-eveninunitsold
• KLMNOPQRSRTUVWXNSYWQZLSP[WVSLQ
Break-evenintotalsalesdollars
• KLMNOPQRS5P[\NWSLmN\NWLQO(oNVW,NSq)
AmountofTimetoBreak-even
a. Howlongdoesittaketobreakeven?
b. Howmuchsalesdotheymaketoget$2,000profit?
c. WhatistheprofitforPowerpuffiftheycanincreasesellby1,000morejarsbyspending$3,000onadvertising?
d. Calculatemarginofsafetyandoperatingleverage
SalesMixBreak-evenAnalysis
Salesmix:givetheratioofproductsthatthecompanysells.Salesmixisnotconstant.
CMRatio=CMofallproductsinthemix/TotalSales
Question8:Powerpuffnowwantstoofferhomemadericekrispieswithlemonadejars.Fixedcostis$16,500.ButtercupalreadycalculatestheCMperunit:
- Ricekrispies:$3(priceat$5/each)- Lemonade:$5(priceat$10/each)
Foreverylemonadejarsold,theycanselltworicekrispies.Whatisthebreak-eveninsale$?
VI. TIPSANDTRICKS
1) UsefulFormulastoremember:- ManufacturingCost=DM+DL+MOH- BeginWIP+ManufacturingCost=TotalWIP- TotalWIP–EndingWIP=CostofGoodsManufactured- BeginFinishedGood+COGM=COGAvailableforSale- COGAvailableforSale–EndingFinishedGood=COGS- TotalProductMargin=Sales–Cost- CustomerMargin=Sales–Costs–Costsrelatedtocustomer- ContributionMarginRatio=CM/Sales=UnitCM/UnitPrice- MarginofSafety=(TotalSale–BreakevenSale)/TotalSales- DegreeofOperatingleverage=CM/NetIncome- POHR=EstimatedtotalMOH/estimatedunit- AppliedOH=POHRxActualActivity
2) Practicemakesperfect!- Practicemidterms- Assignmentsandin-classquestions- Textbookexercises- 2016CMPReviewPackage:Question–Answer
3) Relax,eatwell,andgetenoughsleep!