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ACC406/410

BASICSOFMANAGEMENTACCOUNTING

BeginningworkinprocessXXX
DirectMaterialsUsed:

BeginningdirectmaterialsXXX

Add:purchasesofdirectmaterialsXXX

Less:returnsofdirectmaterialsXXX

Less:endingrawmaterialsXXX
Add:DirectmaterialsusedXXX
Add:Directlabourcost(s)XXX
Add:Manufacturingoverheadcost(s)XXX
ManufacturingcostsstartedthisperiodXXX
TotalmanufacturingcostsXXX
Add:beginningfinishedgoodsinventoryXXX
CostofgoodsavailableforsaleXXX
Less:endingfinishedgoodsinventoryXXX
CostofgoodssoldXXX

Purchaseofmaterials
andother
manufacturinginputs

Conversionintowork
inprocess

Conversioninto
finishedgoods
inventory

Saleoffinishedgoods

PrimeCost
ConversionCost
DirectMaterialsUsed

=
=
=

DirectLabourUsed
BudgetedManufacturing
OverheadRate

=
=

AppliedManufacturing
OverheadCost
TotalManufacturingCostsadded
fortheperiod
CostofGoodsManufactured
Costofgoodssold

UnitManufacturingCost

=
=
=

Directmaterials+directlabour
Directlabour+manufacturingoverhead
Beginningdirectmaterialsinventory+directmaterialspurchased
returnofdirectmaterialsendingrawmaterialsinventory
#ofdirectlabourhoursXcostperdirectlabourhour
Budgetedoverheadcost
Costdriver
*costdriver=budgeted#ofmachinehours,directlabourhours,
etc.
BudgetedOverheadrateXcostdriver
Directmaterialsused+directlabourused+manufacturing
overhead
OpeningWIP+totalmanufacturingcosts endingWIP
Beginningfinishedgoodsinventory+costofgoodsmanufactured
endingfinishedgoodsinventory
Totalmanufacturingcosts
#ofunitsmanufactured

CONCEPTSANDAPPLICATIONS
1.ABCActivityBasedCostingSystem:Costingsysteminwhichthecostoftheproductorserviceisobtainedbyusinga
specificcostdriverforeachtypeofcost
a. Unitelevelcost
b. Batchlevelcost
c. Productlevelcost
d. Facultylevelcost
2.JobCostingSystem:Costingsysteminwhichthecostofaproductorserviceisobtainedbyassigningcoststoadistant
unit,batch,orlotofaproductorservice
a.ServiceSector
b.MerchandisingSector
c.ManufacturingSector
3.ProcessCostingSystem:CostingSysteminwhichthecostofaproductorserviceisobtainedbyusingbroadaveragesto
assigncoststomassesofsimilarunits
a.ServiceSector
b.MerchandisingSector
c.ManufacturingSector

COSTFUNCTIONS

HighLowMethod
Y=Ax+B
Variablerate=Changeincost
Changeinactivity
FixedCost=cost(variablerateXactivity)

LeastSquareMethod
Y=Ax+B
B=n(xy) (x)(y)
n(x_2)(x)2
A=y b(x)
n

COSTVOLUMEPROFITANALYSIS(CVP)
Definition:CVPanalysisexaminesthebehavioroftotalrevenues,totalcosts,andoperatingincomeaschangesoccurinthe
outputlevel,sellingprice,variablecosts,orfixedcosts
Operatingincome

totalrevenuesfromoperations costofgoodssoldandoperating
expenses(excludingincometaxes)
Contributionmarginperunit
=
sellingprice perunit variablecost perunit
Contributionmarginpercentage
=
(sellingprice variablecost)/sellingprice (or)
or= contributionmarginperunit
sellingpriceperunit
Contributionmargin$
=
contributionmarginperunitx#ofunitssold
Contributionmarginratio
=
contributionmargin
Sales
Breakevenpointinunits
=
fixedcost+desiredincome
contributionmarginunit
BreakevenpointinunitsQderivedfromthisequation:
*P=sellingprice,Q=quantitytobreakeven,VCU=variablecostperunit,FC=fixedcost,CM=contribution
margin
(PxQ)
=
(VCUxQ)+FC+Profit
(PxQ)(VCUxQ)
=
FC+Profit
Q(PVCU)
=
FC+Profit
Q
=
FC+Profit
2

Breakevenpointin$

=
or=

or=

EarningsaftertaxEAT

EarningsbeforetaxEBT

Marginofsafety
Operatingleverage

=
=

(P VCU)
FC+Profit
CMperunit
breakevenpointinunitsxsellingpriceperunit
FC+Profit
CMpercentage
FCxunitsellingprice
CMperunit
FC+EBT(1t)
CMperunit
FC+[EAT/(1t)]
CMperunit
sales breakevenpointin$
contributionmargin
operatingincome
*Ifsalesincreasebyxpercent,%increaseinprofits=%increasein
salesxoperatingleverage.Thentotaloperatingincome=income
beforeincrease+%increaseinincomexincomebeforeincrease

BUDGETING

Salesbudget
Productionbudget

=
=
=
=
=
=
=
=
=
=
or=
=
or=
=

Directmaterialpurchasebudget

Directlabourbudget
Cashbudget
Sellingandadministrative
expensebudget
Cashcollection

unitsalesxunitprice
unitsalesxunitsinendinginventory (or)
productionneedsunitsinbeginninginventory
productionxunitdirectmaterial (or)
productionneedxdirectionmaterialinendinginventory(or)
totalneeddirectmaterialinbeginninginventory(or)
directmaterialpurchasexdirectmaterialcostperunit(or)
productionxdirectlabourhouseperunit (or)
directlabourhoursneededxdirectlabourrate
beginningcash+cashsales
cashavailabledisbursementspaidwithcash
unitsalesxVSAR
VSAcost+PSAcost
cashsales+collectionsschedule

OVERHEAD

Budgetedoverheadrate
Underappliedoverheadcost
Overappliedoverheadcost

=
=
=

budgetedOH/budgetOHhours
budgeted<actual=unfavourable
budgeted>actual=favourable

VARIANCES

CostVariances
1. Actual>budget=unfavourable
2. Actual<budget=favourable

SalesVariances
Actual>budget=favourable
Actual<budget=unfavourable

DIRECTLABOURVARIANCE

Actualcost
Flexiblecost
Standardcost
Directlabourratevariance

=
=
=
=
or=
=
or=
=

actualhoursxactualprice
actualhoursxstandardprice
standardhoursxstandardprice
(actualprice standardprice)xactualhours
actualcostflexiblecost
(actualhours standardhours)xstandardprice
flexiblecost standardcost
directlabourratevariance+labourefficiencyvariance

=
=
=
=
=
or=
=
or=
=

actualquantitypurchasedxactualprice
actualquantitypurchasedxstandardprice
actualquantityusedxstandardprice
standardquantityxstandardprice
actualcost flexiblecost1
(actualpricestandardprice)xactualquantitypurchased
flexiblecost2 standardcost
(actualquantityusedstandardquantity)xstandardprice
directmaterialpricevariance+directmaterialusagevariance

Actualcost
Flexiblecost
Standardcost
Variableoverheadspending
variance

=
=
=
=
or=

Variableoverheadefficiency
variance
Totalvariableoverheadvariance

=
or=
=

actualvariableoverheadratexactualhours
standardvariableoverheadratexactualhours
standardvariableoverheadratexstandardhours
actual flexible
actualvariableoverhead(standardvariableoverheadratexactual
hours)
flexible standard
(actualhoursstandardhours)xstandardvariableoverheadrate
variableoverheadspendingvariance+variableoverheadefficiency
variance

Labourefficiencyvariance

Totaldirectlabourvariance

DIRECTMATERIALVARIANCE

Actualcost
Flexiblecost1
Flexiblecost2
Standardcost
Directmaterialpricevariance
Directmaterialusagevariance
Totaldirectmaterialvariance

VARIABLEOVERHEADVARIANCE

FIXEDOVERHEADVARIANCE

Actualcost
Flexiblecost
Standardcost
Fixedoverheadspendingvariance

Fixedoverheaddenominator
variance

=
=
=
=
or=
or=
=
or=

Totalfixedoverheadvariance

actualfixedoverheadratexactualhours
standardfixedoverheadratexbudgetedhours
standardfixedoverheadratexstandardhoursforactualoutput
actual flexible
actualfixedoverheadbudgetedfixedoverhead
actualfixedoverhead(standardfixedoverheadratexbudgetedhours)
budgetedfixedoverhead actualfixedoverhead
(standardfixedoverheadratexbudgetedhours)(standardfixed
overheadratexstandardhoursforactualoutput)
fixedoverheadspendingvariance+fixedoverheaddenominator
variance