Vocabulary
Master Budget
A set of interrelated budgets that help create a plan of action for a specific timeframe
Ending Cash in Cash Budget
Ending Cash = Beginning Cash + Cash Received - Cash Disbursements
What is the first budget a firm should prepare?
Sales Budget (supported by Market Research)
If there was a 200 unit increase in inventory, and each unit resulted in a fixed manufacturing overhead of $10, calculate variable costing income if Absorption income was $340,200.
340,200
-2,000
Variable Costing Income =$338,200
Capital Expenditure
Capital expenditures (CapEx) are funds used by a company to acquire, upgrade, and maintain physical assets such as property, plants, buildings, technology, or equipment. CapEx is also used to undertake new projects or investments by a company through R&D.
Unit Product Cost in Absorption Costing
= DM + DL + FOH + VOH
When compared to Absorption, what is excluded in Variable Product Costing?
Fixed Product Costs
Doggie Nailcovers Manufacturing produces a single product, dog nail covers. They reported the following information from their operations last period:
Cost of Direct Materials used in production: $50,000
Cost of Direct Labor wages: $37,500
Variable Manufacturing Overhead: $25,000
Fixed Manufacturing Overhead: $125,000
Total units produced: 10,000
What is the per-unit cost difference reconciled between Variable and Absorption Costing?
$12.50
Cost of Goods Sold
costs of merchandise, expenses for shipping to and from clients and inbound freight, payment processing fees, packaging materials costs and labor fees.
Required Production Units (Production Budget)
Required Production Units = Budgeted Sales Units + Desired Finished Units - Beginning Finished Units
What is one reason Variable Costing is not allowed under GAAP?
All costs of manufacturing a product are expensed immediately (expense-recognition violation)
Hannon Retailing Company prices its products by adding 30% to its cost. Hannon anticipates sales of $715,000 in July, $728,000 in August, and $624,000 in September. Hannon’s policy is to have on hand enough inventory at the end of the month to cover 25% of the next month’s sales. What will be the cost of the inventory that Hannon should budget for purchase in August?
$540,000
Traceable Fixed Costs
They can be traced to a segment and will be eliminated if a segment is discontinued
NOIAbsorption-NOIVariable = ?
NOIAbsorption-NOIVariable =FOH/unit * Ending Finished Goods Inventory
How do you estimate cash collections in a given month?
We estimate cash collections by adding this month's cash sales and credit sales for which cash was paid, with cash paid for last month's credit sales.
Which of the following situations would cause variable-costing income to be lower than absorption-costing income?
a. Units sold equaled 39,000 and units produced equaled 42,000.
b. Units sold and units produced were both 42,000.
c. Units sold equaled 55,000 and units produced equaled 49,000.
d. Sales prices decreased by $7 per unit during the accounting period.
e. Selling expenses increased by 10% during the accounting period.
a. Production > Sales