Chapter 1

Differences between Financial and Managerial Accounting

Exhibits here
Scorekeeping -
GAAP - Sarbanes
Management by Exception
Functions Chain
Ethics
Homework

Sales
Chapter 2 -Variable Cost
"know intimately" Contribution Margin
Variable and Fixed Costs - Fixed Cost
Breakeven Net Income
Contribution Margin

V=(Δcosts)/ (Δactivity) F = Costhigh - (V * Activityhigh)

Chapter 3
High - low F = Costlow - (V *Activitylow)
Mixed Costs (Y = F + VX)
High Low
Two extreme data points

Chapter 4
Product costs (normal costing)
Actual (DM + DL) + Estimated off of budget (I-MOH)
Activity Costing
Product costs vs period costs
Inventory on BS (product cost) (when Sold) shipped expense COGS on an IS(period cost)
131 example - manufacturing
138 - Lopez plastics
Chapter 13
5 questions here
Budgeted overhead rate = Total budgeted factory overhead (dollars)/
(BOAR) Total budgeted activity cost driver (hours or labor costs)
Reconciliation : underapplied vs overapplied - allocated compared to actual
5/6 questions here
immediate write off approach - adjusted to cost of goods sold UDOC (under debit over credit) COGS
Record labor actual : record materials actual : record overhead at allocated rate

variable vs absorption costing 540

variable (fixed OH go straight to income sheet) not allowed GAAP - internal use only - incentive for
absorption (GAAP based) company's best interest

When units sold > units produced (Variable > absorption)

Chapter 14
Process Costing - Making Beer! - equivalent units
Job Costing (WIP -> finished goods -> inventory -> Cogs)
Job Cost Sheet
 Chapter 5
Relevant information: future and element of alternatives
Absorption Approach (GAAP) Sales - Cost = Gross - Op Ex - NI
Contribution (variable and Fixed)
Pricing Special Orders - short term only Ignore fixed (make sure capacity)
Cost Plus Pricing (gift)
Target Pricing (gift)

Chapter 6
Opportunity cost
Make-or-Buy (outsourcing) - Avoidable fixed are relevant.
Keep or lose product - segment margin
Optimal Use of Limited Resources: product mix decisions
1. CM (per unit)
2. CM (per hour)
Inventory Turnover

PROBLEMS
Enola, Inc., manufactures a product that sells for $400. The variable costs per
unit are as follows:

Direct materials $100

Direct labor 80
Variable manufacturing overhead 50

During the year, the budgeted fixed manufacturing overhead is estimated to be

$500,000, and budgeted fixed selling and administrative costs are expected to
be $250,000. Variable selling costs are $20 per unit.

Required:

a. Determine the break-even point in units.

b. Determine the number of units that must be sold to earn $300,000 in profit
before taxes.

5. Chopra Company developed the following income statement using a

contribution margin approach:

CHOPRA COMPANY
PROJECTED INCOME STATEMENT
FOR THE CURRENT YEAR ENDING DECEMBER 31
Sales $240,000

Less variable costs:

Variable manufacturing costs $60,000
Variable selling costs 36,000
Total variable costs 96,000
Contribution margin $144,000

Less fixed costs:

Fixed manufacturing costs $85,000
Fixed selling and administrative costs 35,000
Total fixed costs 120,000
Operating income $ 24,000

The projected income statement was based on sales of 12,000 units. Chopra
has the capacity to produce 15,000 units during the year.

Required:

a. Determine the break-even point in units.

b. The sales manager believes the company could increase sales by 1,000 units
if advertising expenditures were increased by $15,000. Determine the
effect on income if the company increases advertising expenditures.

c. What is the maximum amount the company could pay for advertising if the
advertising would increase sales by 1,000 units?
The Dewey Company uses a predetermined overhead rate to apply manufacturing
overhead to production. The rate is based on direct labor hours. Estimates
for the year just ended are as follows:

Estimated manufacturing overhead $240,000

Estimated direct labor hours 40,000

During the year Dewey Company used 37,000 direct labor hours.

At the end of the year, Dewey Company records revealed the following
information:

Raw materials inventory $ 35,000

Work-in-process inventory 60,000
Finished goods inventory 105,000
Cost of goods sold 400,000
Manufacturing overhead costs incurred 210,000

Required:

a. Calculate the predetermined overhead rate for the year.

b. Determine the amount of overhead applied during the year.

c. Determine the amount of underapplied or overapplied manufacturing overhead

for the year.
The Huyden Company builds equipment to customer's specifications. On March 1, two
jobs were in process with the following costs and information:

Job 43 Job 44
Direct materials $10,200 $34,400
Direct labor 21,000 10,400
Applied overhead* 4,950 7,370
Total cost $36,150 $52,170

Machine hours 45 67

*Applied on the basis of machine hours

During March, Job 45 was started and Job 44 was completed and delivered to the
customer. Job 43 was missing a part that was backordered and would be
completed in June. The following costs were incurred in March:

Job 43 Job 44 Job 45

Direct materials $2,300 $4,500 $12,700
Direct labor $2,400 $3,300 $4,500
Machine hours 21 11 23

It is Huyden's policy to bill clients at cost plus 40 percent.

Required:

a. Calculate the overhead rate that Huyden is using.

b. Calculate the overhead applied to each job during the month of March.

c. Calculate the balance in work in process on March 31.

d. What was the price of Job 44?

The Oakland plant has two categories of overhead: maintenance and inspection. Costs
expected for these categories for the coming year are as follows:

Maintenance $240,000
Inspection 500,000

The plant currently applies overhead using direct labor hours and expected
capacity of 100,000 direct labor hours. The following data has been assembled
for use in developing a bid for a proposed job. Bid prices are calculated as
full manufacturing cost plus 20 percent markup.

Direct materials $2,800

Direct labor $7,500
Machine hours 900
Number of inspections 8
Direct labor hours 1,100

Total expected machine hours for all jobs during the year is 60,000, and the
total expected number of inspections is 4,000.

Required:

a. Compute the total cost of the potential job using direct labor hours to
assign overhead.

Also determine the bid price for the potential job.

b. Compute the total cost of the job using activity-based costing and the
appropriate cost drivers.

Also determine the bid price if activity-based costing is used.

Holbrook, Inc., has identified the following overhead costs and cost drivers for
next year:

Overhead Item Expected Cost Cost Driver Expected Quantity

Setup costs $960,000 Number of setups 4,800
Ordering costs 160,000 Number of orders 20,000
Maintenance 640,000 Machine hours 64,000
Power 80,000 Kilowatt hours 200,000

The following are two of the jobs completed during the year:

Job 701 Job 702

Prime costs $25,000 $18,000
Units completed 650 500
Direct labor hours 180 220
Number of setups 12 15
Number of orders 16 30
Machine hours 360 300
Kilowatt hours 180 650

The company's normal activity is 40,000 direct labor hours.

Required:

a. Determine the unit cost for each job using direct labor hours to apply
overhead.

b. Determine the unit cost for each job using the four cost drivers. (Round
amounts to two decimal places.)

c. Which method produces the more accurate cost assignment? Why?

Vance Company manufactures a product that has the following unit costs: direct
materials, $15; direct labor, $12; variable overhead, $8; and fixed
overhead, $12. Fixed selling costs are $1,500,000 per year. Variable selling
costs of $4 per unit cover the transportation cost. Although production
capacity is 800,000 units per year, the company expects to produce only
650,000 units next year. The product normally sells for $70 each. A customer
has offered to buy 50,000 units for $45 each. The customer will pay the
transportation charge on the units purchased.

Required:

a. What is the incremental cost to Vance Company for the special order?

b. What is the effect on Vance's income if the special order is accepted?

Majestic Company manufactures a product that has the following unit costs:
direct materials, $5; direct labor, $7; variable overhead, $3; and fixed
overhead, $5. Fixed selling costs are $200,000 per year. Variable selling
costs of $1 per unit cover the transportation cost. Although production
capacity is 80,000 units per year, the company expects to produce only 65,000
units next year. The product normally sells for $30 each. A customer has
offered to buy 10,000 units for $18 each. The customer will pay the
transportation charge on the units purchased.

Required:

a. What is the incremental cost per unit to Majestic Company for the special
order?

b. What is the effect on Majestic's income if the special order is accepted?

Mills Inc. manufactures 50,000 components per year. The manufacturing cost per
unit of the components is as follows:

Direct materials $12

Direct labor 13
Variable overhead 5
Fixed overhead 10
Total unit cost $40

An outside supplier has offered to sell the component to Mills Inc. for $35.

Required:

a. What is the effect on income if Mills Inc. purchases the component from
the outside supplier?

b. Assume that Mills Inc. can avoid $700,000 of the total fixed overhead
costs if it purchases the components. Now what is the effect on income if
Mills Inc. purchases the component from the outside supplier?

Austin Industries has two divisions: Dallas Division and Houston Division.
Information relating to the divisions for the current year is as follows:

Dallas Houston
Units produced and sold 20,000 15,000
Selling price per unit $20 $25
Variable expenses per unit $12 $15
Direct fixed expenses $100,000 $140,000

Fixed expenses that cannot be identified directly with either division but
which are necessary for the operation of the company amounted to $40,000.

Required:

Prepare income statements segmented by division.

Russett Industries produces three products: Product A, Product N, and Product G.
Information for the products for the year is as follows:

Product A Product N Product G

Units produced and sold 10,000 8,000 3,000
Selling price per unit $16 $20 $25
Variable expenses per unit $10 $15 $23

The company's fixed costs totaled $75,000, of which $30,000 can be avoided if
Product A is dropped, $25,000 can be avoided if Product N is dropped, and
$8,000 can be avoided if Product G is dropped.

Required:

a. Determine the segment margin for each product.

b. What would be the effect on the firm's profit if Product A were dropped?
Indicate whether this is an increase or decrease.

c. What would be the effect on the firm's profit if Product N were dropped?
Indicate whether this is an increase or decrease.

d. What would be the effect on the firm's profit if Product G were dropped?
Indicate whether this is an increase or decrease.

e. Which, if any, of the products should the firm drop in order to increase
profits?