tut4 slide managerial acc
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8/13/2019 Tut4 Slide Managerial ACC
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Tutorial 4 - summary Pertinent points to note.
Components of COS and Expenses inthe Income Statement under the twocosting systems (AC, VC).
Reflecting the differences in NOIreported that lies primarily in the FMOHdeferred.
Effect on profit
Observations/inferences.
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Tutorial 4 Pertinent Points onAbsorption/Variable Costing
Difference between the income reported under AC asagainst VC is in the deferred fixed MOH applied to theinventory change . i.e.
( AC-VC) = FMOH per unit X change in Inventory
(CI OI)
Change in Invy = Diff in Income unit FMOH cost(CI OI)
units Produced = units Sold change in inventory(=closing inventory opening inventory)
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Composition of COS & expenses
Under VC * Under AC
Cost of Sales- Cost of Sales-
COGS (as variable costs) COGS(as variable costs)
Variable S,G&A Fixed MOH on units sold(FMOH applied to the FG sold)
Operating Expenses - Operating Expenses -
Fixed MOH Total S,G&A(Fixed + Variable)Fixed S,G&A
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Variable
Costing
Absorption
Costing DifferencesJuly July
Units sold 15,000 Units sold 15,000
Units produced 17,500 Units produced 17,500
Opening inventory 0 0
Ending inventory 2,500 2,500
Sales $900,000 Sales $900,000
Less: Variable expenses- Less: Cost of goods sold -
Product cost - COGS @ $22
per unit ($330,000)
Product cost - COGS @ $22
per unit ($330,000)
Variable selling @ $3 ea ($45,000) Fixed OH @ $18 ea unit ($270,000)
Total variable costs/expenses ($375,000) Total costs ($600,000)
Contribution margin $525,000 Gross Margin $300,000
Less: Fixed expenses: Less: Operating expenses:
Fixed mfg overhead 315,000
Fixed selling & admin exp. 245000 Total Selling & admin exp. $290,000
Total fixed expenses 560,000 Total operating expenses $290,000
Net operating income (loss) ($35,000) Net operating income (loss) $10,000 ($45,000)
Ending Invy 2,500 units
@$22 ea $ 55,000
Ending Invy 2,500 units @$40
ea $ 100,000 $ 45,000
Fixed OH deferred in the change in Inventory.
Comparison
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Effect on Profit under AC vs VCYear 1 Year 2 Year 3
Sales units (S) 50,000 40,000 50,000
Production units (P) 50,000 60,000 40,000
Opening Inv'y (OI) - - 20,000
Closing Inv'y (CI) - 20,000 10,000
Relationship :-
Production vs Sales P = S P>S POI CI VC AC
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Observations AC vs VC
Scenario1 Scenario 2 Scenario 3
Absorption costingNOI = Variable
costing NOI
Absorption costingNOI > Variable
costing NOI
Absorption costingNOI < Variable
costing NOI
Production = Sales Production > Sales Production < Sales
Inventories remainthe
same/unchanged Inventories grow Inventories shrink
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Is Variable costing same as Directing costing?The term direct costingis a misnomer. Variable costing is notsynonymous to direct costing.Under variable costing, the variable costs of direct material, direct labor,
and variable overhead are treated as inventoriable product costs.
Not all variable costs are direct costs, but they are treated as productcosts under the variable-costing method. For example, the costs ofrunning machinery used in manufacturing are not direct costs, but theyare likely to be variable or semi-variable. Variable costing includes as
inventoriable costs not only direct manufacturing costs but also someindirect costs (variable indirect manufacturing costs).
Any fixed direct manufacturing costs, and any direct non-manufacturing
costs (either variable or fixed), are excluded from inventoriable costs.Hence, under variable costing fixed MOH costs are not treated as productcosts.
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Tutorial 5 Assignment
Group K15, & K17
Team 1 = Qn 3, Problem 10-26
Team 2 = Qn 1 & 2, Problem 10-11 & 10-19,
Team 3 = Qn 4, Supple Qn 1,
Team 4 = Qn 5, Supple Qn 2
Group K 16 Teams 1 to 5 - Question 1 to 5 respectively
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Tutorial 4 Assignment
Group K15, & K17
Team 1 = Qn 1 & 2, Supple Question on ABC& Problem 7-17
Team 2 = Qn 3, Problem 5-14,
Team 3 = Qn 4, Problem 5-16,
Team 4 = Qn 5, Case 5-20
Group K 16
Teams 1 to 5 - Question 1 to 5 respectively
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