Chapter 1
What is the key difference between financial accounting and managerial accounting?
Please give an example of an activity that each type of accounting will do.
Financial accounting is EXTERNAL. (Preparing financial statements for stakeholders)
Managerial accounting is INTERNAL. (Preparing an internal budget for the company)
Classify the following as job order costing or process costing
1. Production of computers
2. Production of new campus building
3. Production of automobiles
4. Production of movies
Job-order: Production of new campus building, Production of movies
Process costing: Production of computers, Production of automobiles
How do you know if overhead was overapplied or underapplied?
Formula: Actual OH - Applied OH
OVERapplied: Actual OH - Applied OH < 0 This means that there is an excess of applied overhead
UNDERapplied: Actual OH - Applied OH > 0 This means that there is not enough applied overhead
Exact: Actual OH = Applied OH The actual overhead = budget/planned for overhead
What is the formula for equivalent units
Equivalent units = # of units partially completed x % completed
Emi. Co is trying to calculate unit breakeven. They sell keychains for $30 each and it costs them $16 to make each one. They also have to pay $30,000 for the factory over head and $15,000 for selling and admin each year.
Fixed expenses = $30,000 + $15,000 = $45,000
Contribution margin = $30 - $16 = $14
Breakeven = $45,000/$14 = 3215 units
Classify the costs for a bag of hot cheetos. I want to know the type of cost, is it product or period, and is it fixed or variable?
1. Potatoes
2. Glue to seal the bag
3. Depreciation on Administration building
4. Sales commissions
5. Salary of the hot cheeto bagger
1. Potatoes (DM, Product, Variable)
2. Glue to seal the bag (MOH (IM), Product, Variable)
3. Depreciation on Administration building (Admin, Period, Fixed)
4. Sales commissions (Sales, Period, Variable)
5. Salary of the hot cheeto bagger (DL, Product, Fixed)
Calculate the POHR
Machine-hours 100,000
Direct labor-hours 74,000
Total Fixed MOH cost $225,000
Variable MOH/MH $1.50
$225,000 + ($1.50/MH x 100,000 MHs) = $375,000
POHR = $375,000/100,000 MHs= $3.75
Assume that the predetermined overhead rate is $8.50/MH and $6/DLH.
Also assume that 7,000 machine hours were worked on Job A and 4,500 machine hours were worked on Job B.
Record the the Journal entry for the application of MOH.
Overhead cost: $8.50/MH x (7,000 MH + 4,500 MH) = $97,750
Dr. Work in process $97,750
Cr. Manufacturing overhead $97,750
Calculate the total equivalent units of production.
Mixing department:
Units completed and transferred: 4500
Work in process: 600 units 50% complete
Bottling department:
Units completed and transferred: 4500
Work in process: 600 units 25% complete
Formula: units completed and transferred + equivalent units left in WIP = Equivalent units of production
Mixing department:
4,500 + (600 units x 50%) = 4,500 + 300 = 4,800
Bottling department:
4,500 + (600 units x 25%) = 4,500 + 150 = 4,650
Total Equivalent units of production: 4,800 + 4,650 = 9,450 units
Emi Co. breaks even when they sell 800 units. This year they were able to sell 1350 units (they had a product go viral on tiktok). What is the margin of safety?
The following is listed in $/unit for 800 units:
Selling price $100
Variable expenses $68.75
Fixed expenses: $31.25
Breakeven:
Sales: $100 x 800 = $80,000
Actual:
Sales: $100 x 1350 = $135,000
Margin of saftey:
(Actual sales - Breakeven sales) / Actual sales
($135,000 - $80,000) / $135,000
= 40.74%
Emi Co. reported the following year end information:
Beginning raw materials inventory 24,000
Ending raw materials inventory 20,000
Raw materials purchased 830,000
Direct labor 440,000
Manufacturing overhead 100,000
Only 75% of the raw materials used were direct materials.
What is Emi Co.'s total manufacturing cost?
RM used: Beg. RM + Purchases - End. RM = RM used
24,000 + 830,000 - 20,000 = 834,000 RM used
DM: 834,000 RM used x 75% used for DM = 625,500
TMC: 625,000 (DM) + 440,000 (DL) + 100,000 (MOH)
Taryn recorded that 87,250 machine hours were used and the predetermined overhead rate was $0.15/minute. The budget for overhead costs was $800,000. Was overhead overapplied or underapplied and by how much?
POHR/hour = $0.15/minute x 60 minutes = $9/hour
Actual MOH = $9/hour x 87,250 machine hours = $785,250
MOH applied = $800,000
Actual - applied overhead = $785,250 - $800,000 = -$14,750
OVERAPPLIED OVERHEAD (actual - applied < 0)
Overapplied by $14,750
What effect will the overapplied overhead have on net operating income
Overapplied overhead results in too many expenses, so NOI will be lower than what it should be.
Calculate the total cost per equivalent unit given that there are 4,800 equivalent units in mixing and 4,650 equivalent units in bottling.
Mixing:
WIP: $6,100
Cost added: $72,000
Bottling:
WIP: $3,900
Cost added: $54,250
Total cost
Mixing: $6,100 + $72,000 = $78,100
Bottling: $3,900 + $54,250 = $58,150
Cost per equivalent unit:
Mixing: $78,100/4,800 units = $16.27
Bottling: $58,150/4,650 units = $12.51
Total cost per equivalent unit:
$16.27 + $12.51 = $28.78
Find the degree of operating leverage for 1350 units. What does operating leverage measure?
The following is listed in $/unit for 800 units:
Selling price: $100
Variable expenses: $68.75
Fixed expenses: $31.25
Contribution Margin = ($100 - $68.75) x 1350 = $42,187.50
Fixed expenses = $31.35 x 800 = $25,000
Net operating income = $42,187.50 - $25,000 = $17,187.50
Degree of operating leverage = $2.45
The degree of operating leverage measures how a percentage change in sales volume will affect profits. (basically a shortcut to measure net operating income in some cases)
Emi is running a boba business. She sold 10,000 units of boba for $7 each. She incurred the following expenses:
Direct materials 10,700
Boba barista's wage 15,340
Manager's salary 7,000
Marketing budget 5,250
Napkins for customers 1,200
What is the contribution margin per unit?
Sales: 10,000 units x $7/unit = $70,000
Variable costs =
Direct materials 10,700
Boba barista's wage 15,340
Napkins for customers 1,200
Total vc = $27,240
Total CM: $70,000 - $27,240 = $42,760
CM/unit: $42,760/10,000 = $4.28
Tan Co. estimates that total factory overhead costs will be $165,000 for the year. Direct labor hours are estimated as 30,000 for the year. The company has two completed jobs at the end of January, Jobs 101 and 102. The direct labor hours and units are as follows
Job 101: DL hours 650; Units produced 475
Job 102: DL hours 820; Units produced 1,100
Please record a journal entry for the total applied overhead.
Dr. Work in Process $8,085
Cr. Factory overhead $8,085
Adriana Inc.'s accounting records reflect the following inventories:
December 31, 2023
Raw materials inventory $352,000
Work in process inventory $280,000
Finished goods inventory $170,000
December 31, 2022
Raw materials inventory $293,000
Work in process inventory $115,000
Finished goods inventory $160,000
During 2023, $875,000 of raw materials were purchased, direct labor costs amounted to $580,000, and manufacturing overhead incurred was $554,000. Assume 30% of the raw materials were indirect materials that were included in manufacturing overhead incurred.
Calculate the cost of goods manufactured.
RM Usage: Beginning RM + RM purchases -Ending RM inventory
=> $293,000 + $875,000 - $352,000 = $816,000
DM is 70% of the RM used (100%-30%=70%)
=> DM= $816,000 x 70% = $571,200
COGM = Beginning WIP + DM + DL + MOH - Ending Wip
=> $115,000 + $571,200 + $580,000 + $554,000 - $280,000 = $1,540,200
Please determine the total cost of the ending WIP inventory and the total cost of units transferred out given the following information.
Materials
Equivalent units: 300
Units transferred: 4,500
Cost per equivalent unit: 16.27
Conversion
Equivalent units: 150
Units transferred: 4500
Cost per equivalent unit: $12.51
Cost of ending WIP inventory = equivalent units x cost per unit.
Materials: 300 x $16.27 = $4,881
Conversion: 150 x $12.51 = $1,876
Total cost of ending WIP inventory = $4,881 + $1,876 = $6757
Cost of units completed and transferred out = equivalent units x cost per unit.
Materials: 4500 x $16.27 = $73,219
Conversion: 4500 x $12.51 = $56,274
Total cost of units completed and transferred out: $73,219 + $56,274 = $129,493
Emi Co. wants to motivate their employees. Employees will be paid by sales commissions. This will increase their unit sales by 20%. Employees will get $8 from every unit sold. $4,000 in fixed expenses will be eliminated. Should they implement this change?
The information below is from last year at a sales volume of 800 units.
Sales: $50/unit
Variable expenses: $32.5/unit
Contribution margin: $17.5/unit
Fixed Expenses: $8,680
Net Operating Income: $5,320
Unit sales: 800 x 20% = 960 units
Sales: $50 x 960 = $48,000
Variable expenses: ($32.5 + $8) x 960 = $38,880
Contribution margin: $48,000 - $38,880 = $9,120
Fixed Expenses: $8,680 - $4,000 = $4,680
Net Operating Income: $9,120 - $4,680 = $4,440
This change should not be implemented.
Gerve is manufacturing drawing tablets. Their relevant range is 50 - 100 units. If they go over their relevant range, their rent increases by $200. The following information is the average cost of 100 units:
DM 5.70/unit
DL 3.00/unit
Rent 2.30/unit
Advertising 1.15/unit
What is Gerve's incremental cost of production if they produced 101 units?
Variable production costs: 5.70/unit + 3.00/unit = 8.70/unit
Since 101 is over the relevant range, we need to add the extra $200 rent:
Fixed production cost: $200
Incremental cost: $8.70 + $200 = $208.70
Tan Co. estimates that total factory overhead costs will be $165,000 for the year. Direct labor hours are estimated as 30,000 for the year. The company has two completed jobs at the end of January, Jobs 101 and 102. The direct labor hours and units are as follows
Job 101: DL hours 650; Units produced 475
Job 102: DL hours 820; Units produced 1,100
Calculate the POHR, Overhead applied for job 101 and 102, and the Total overhead applied.
POHR: factory overhead costs/ est DL hours
$165,000 / 30,000 = $5.50
Applied Overhead for Job 101:$5.50 x 650=$3,575
Applied Overhead for Job 102:$5.50 x 820=$4,510
Total applied overhead = $3,575 + $4,510 = $8,085
Allocate the underapplied overhead and record the adjustment in a JE. The following information is given:
Overhead was underapplied by $50,000
Below is the amount of overhead applied to each category
Ending WIP Inventory: $20,500
Ending FG Inventory: $35,200
Ending COGS Inventory: $68,300
Debit:
Work in process inventory: $8,500
Finished goods inventory: $14,000
Cost of goods sold inventory: $27,500
Credit:
Manufacturing overhead: $50,000
Please calculate the total cost accounted for.
Cost of beginning WIP inventory: $10,140
Costs added to production during the period: $140,000
Cost to be accounted for
Cost of beginning WIP inventory ($10,140)
+Costs added to production during the period ($140,000)
= $150,140 to be accounted for
Cost accounted for:
Total cost to be accounted for = Total cost accounted for
Total cost to be accounted for $150,140 = Total cost accounted for
Find the cost equation for maintenance using the high low method.
(Excel)
Excel