20 mwf pp ch 02(d-1) cleared
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Powerpoint.TRANSCRIPT
Inventory out-flow CalculationBeg Inv + InvIncr = Total Inv = InvOut + End Inv
Beg Inv + InvIncr = InvOut + End Inv subtract Ending Inventory from both sides BegInv + InvIncr – EndInv = InvOut + EndInv – EndInv
since …. +EndInv – EndInv = zeroBegInv + InvIncr – EndInv = InvOut + - 0 –BegInv + InvIncr – EndInv = InvOut
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Cost of Goods Sold Schedule & Formula
+ Beginning finished goods inventory + BegFG+ Cost of goods manufactured +
CofGM= Cost of goods available for sale– Ending finished goods inventory - EndFG= Cost of goods sold = CofGS
BegFG + CofGM – EndFG = CofGS
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Cost of Goods Manufactured Schedule & Formula
+ Beginning work in process inventory + BegWIP+ Direct materials used + DMused+ Direct labor + DL+ Manufacturing overhead + MOH
• Indirect materials• Indirect labor• Other indirect manufacturing costs
= Total manufacturing costs to account for– Ending work in process inventory - EndWIP= Cost of goods manufactured = CofGM
BegWIP + (DMused + DL + MOH) – EndWIP = CofGM
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Direct Materials Used Schedule & Formula
+ Beginning raw materials inventory BegRM+ Purchases of raw materials + RMincr+ Freight in + other purch costs + RMincr= Materials available for use– Ending raw materials inventory + EndRM= Direct materials used = DMused
BegRM + (RMPurch + Frt) – EndRM = DMU
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7Copyright © 2015 Pearson Education, Inc.
Direct Materials used
Cost of Goods Mfg
Cost of Goods Sold
Income Statement
DM UsedBegInv + InvIncr – EndInv = CofGMfg
CofGS
E2-25A Pg 86
Which formula do we need to use?Direct Materials used
Cost of Goods Mfg
Cost of Goods Sold
Income Statement
BegWIP + (DMused + DL + MOH) – EndWIP = CofGM
BegInv + InvIncr – EndInv
Computation of Direct Materials Used
Direct materials used:Beginning raw materials inventory
Purchases of direct materialsImport duties
Freight-inDirect materials available for useEnding raw materials inventoryDirect materials used
E2-25(a)
Beg + Incr – Ending .. of ??http://www.wavsource.com/snds_2015-08-23_2824562050165472/movies/wizard/melting2.wav
Pg 86Direct Materials Used
E2-25(A), Cost of Goods Manufactured
Beginning WIP Inventory+ Mfg costs incurred:• DM Used (..see DM used sched)• DL• MOHTotal mfg costs to account for- Ending WIP InventoryCost of Goods Mfg
Total MOH:• Indirect Labor• Insurance (Other MOH)• Depreciation (Other MOH)• Repairs & Maint (Other MOH)
• Total MOH
Beg + Incr – Ending .. of ??Raw materials used $75,000
Pg 86
E2-25(b), Cost of Goods Sold
Beginning FG Inventory
+ Cost of Goods Mfg (see CofGM schedule)Total Goods available for Sale- Ending FG InventoryCost of Goods Sold
Beg + Incr – Ending .. of ??Raw materials used $ 75,000 Cost of Goods Mfg $ 243,800
Pg 86
13Copyright © 2015 Pearson Education, Inc.
Direct Materials used
Cost of Goods Mfg
Cost of Goods Sold
Income Statement
Direct Material Used (DM Used)• BegRM + RMincr = RMavail – EndRM = DMused• BegRM + RMincr – EndRM = DMused
Cost of Goods Manufactured (CofGM)• BegWIP + WIPincr = TotMfg – EndWIP = CofGM• WIPincr = DMused + DL + MOH• BegWIP + (DMused + DL + MOH) – EndWIP = CofGM• MOH = IM + IL + OthrMOH• BegWIP + (Dmused + DL + IM + IL + OthrMOH) – EndWIP = CofGM
Cost of Goods Sold (CofGS)• BegFG + CofGM = FGAvail – EndFG = CofGS• BegFG + CofGM – EndFG = CofGS
Operating Income (OpI)• Rev – CofGS = GP – Per = OpI• Rev – CofGS – Per = OpI
Using the formulas to solve a problem• BegRM + RMincr – EndRM = DMused• BegWIP + (DMused + DL + IM + IL + OthrMOH) – EndWIP = CofGMfg• BegFG + CofGMfg – EndFG = CofGS• Sales – CofGS – Per = OpI
Use DMused formula to solve for Ending Raw Material inventory(EndRM)• BegRM + RMincr – EndRM = DMused
• since EndRM = EndRM … add EndRM to both sides
• BegRM + RMincr – EndRM + EndRM = Dmused + EndRM
since -EndRM + EndRM = 0 so substitute zero in the formula• BegRM + RMincr + 0 = DMused + EndRM
• BegRM + RMincr = DMused + EndRM• since DMused = DMused .. subtract DMused from both sides
• BegRM + RMincr – DMused = DMused – DMused + EndRM• +DMused – DMused = 0 so substitute -0- in the formula
• BegRM + RMincr – DMused = 0 + EndRM
• BegRM + RMincr – DMused = EndRM
Direct Materials used = BegRM + (RMPurch+FrtIn+Duties)-EndRMCost of Goods Mfg = BegWIP+DMused+DL+(IM+IL+OMOH)-EndWIP
Cost of Goods Sold = BegFG + CofGMfg - EndFGIncome Statement Rev – CofGS = GP – Per = OpI
(a) Cost of Goods SoldE2-27Pg 87
Direct Materials used = BegRM + (RMPurch+FrtIn+Duties)-EndRMCost of Goods Mfg = BegWIP+DMused+DL+(IM+IL+OMOH)-EndWIP
Cost of Goods Sold = BegFG + CofGMfg - EndFGIncome Statement OpI = Rev – CofGS = GP - Per
(b) Beginning Raw MaterialsE2-27Pg 87
Cost of Goods Sold $ 15,600
(c) Ending Finished Goods InventoryE2-27Pg 87
Direct Materials used = BegRM + (RMPurch+FrtIn+Duties)-EndRMCost of Goods Mfg = BegWIP+DMused+DL+(IM+IL+OMOH)-EndWIP
Cost of Goods Sold = BegFG + CofGMfg - EndFGIncome Statement OpI = Rev – CofGS = GP - Per
Cost of Goods Sold $ 15,600
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Cost Behavior
Variable costs Change in total cost in direct proportion to changes in volume
Fixed costs Stay constant in total cost over a wide range of activity levels
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Cost behavior—how costs change as volume changes.
What are some examples of Variable costs?What are some examples of Fixed costs?
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Total Cost
• Total cost = Fixed costs + Total Variable cost (Variable cost per unit x number of units)
Example:Fixed costs = $20,000Variable cost per unit = $50 per unitNumber of units = 100
Total cost = $20,000 + ($50 x 100) = $25,000
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Cost Behavior SummarizedTotal Dollars Cost per Unit
Variable Costs
Change in proportion with
outputMore output = More cost
Fixed Costs Unchanged in relation to output
Change inversely with
outputMore output = lower
cost per
unit
Total Dollars Cost Per Unit
Variable Costs
Change in proportion with
outputMore output = More
cost
Unchanged in relation to
output
Fixed Costs
Unchanged in relation to
output
Change inversely with
outputMore output = lower
cost per unit
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S2-16
Cost incurred Variable or Fixeda. Cost of coffee used at a Starbucks store
b. Hourly wages paid to sales clerks at Best Buy
c. Monthly flower costs for a florist
d. Cost of fuel used for a trucking company
e. Shipping costs for Amazon.com
f. Monthly rent for a nail salon
g. Sales commissions at a car dealership
h. Monthly insurance costs for the home office of Google
i. Monthly depreciation of equipment for a customer service office
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S2-16 (continued)
Cost incurred Variable or Fixedj. Cost of fabric used at a clothing manufacturer
k. Cost of fruit sold at a grocery store
l. Monthly office lease costs for a CPA firm
m. Monthly cost of French fries at a McDonald’s restaurant
n. Property taxes for a restaurant
o. Depreciation of exercise equipment at the YMCA
Pg 82
Multiple Classifications of Costs
• Costs may be classified as:– Direct/Indirect, and – Variable/Fixed
• These multiple classifications give rise to important cost combinations:– Direct and variable– Direct and fixed– Indirect and variable– Indirect and fixed
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Controllable vs Uncontrollable Relevant vs Irrelevant Costs
Controllable Management can influence or change cost
Uncontrollable Management cannot change or influence cost in the short run
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Relevant Differential costs, which are costs that differ between alternatives
IrrelevantCosts that do not differ between alternativesorSunk costs – costs incurred in the past that cannot be changed
E2-28 pg 87
Cost incurred relevant/irrelevanta. The interest rate paid on invested funds, when deciding how much inventory to keep on-hand
b. Cost of computers purchased 6 months ago, when deciding whether to upgrade to computers with faster processing speedc. The property tax rates in different locales, when deciding where to locate the company’s headquartersd. The type of fuel (gas or diesel) used by delivery vans, when deciding which make and model of van to purchase for the company’s delivery van fleet.e. Cost of operating automated production machinery versus the cost of direct labor, when deciding whether to automate production.
f. The fair market value of old manufacturing equipment when deciding whether or not to replace it with newer equipment.g. Cost of purchasing packaging materials from an outside vendor, when deciding whether to continue manufacturing the packaging materials in-house.h. Depreciation expense on old manufacturing equipment when deciding whether or not to replace it with newer equipment.i. The cost of land purchased 3 years ago, when deciding whether to build on the land now or wait two more years before building.