CHAPTER 2: COST TERMS,
CLASSIFICATIONS AND BEHAVIOUR
DM
- Physically and economically traceable
- Significant cost din
Cost DL
- Nilabas na pera kapalit ng goods and services - Directly involved
- Hindi automatically expense pag nilabas, EXPIRED - Exception: Overtime premium
LANG ung expense FOH
- Indirect mat
- Indirect labor
- Taxes
- Indirect mat, labor, insurance (expired portion only)
- Rent, R&M
- Utilities
- Depreciation (PPE inside the factory)
- Other OH fc
Classification of Costs
VARIABLE COST
- Total = direct
- Unit = constant
FIXED COST
- Total = constant
- Unit = varies, inversely
- Opportunity income
MIXED COST
-
- Dito lng valid ang cost function within the relevant range
PROBLEMS DM
DL
OH,,,
TMC
WIP BEG
TCWPIP
(WIP END)
CGM
FGI BEG
CGAS
(FGI END)
COGS
- Sales salaries - selling expense
- Advertising - selling
HIGH LOW METHOD
PROBLEM 1
- DM - RM used ONLY (NOT ENDING)
- TOTAL COST INVENTORY - COGS
- FC = LC - VCu(L Unit) OR FC = HC - VCu(H Unit)
PROBLEM 1.2 - SAME GIVEN, with relevant range from 6k to
13k units
PROBLEM 2
PROBLEM 4 - HLM AND Least square = Linear Regression
- pag nagbago total fixed cost, may ibang relevant range
PROBLEM 3
Scatter diagram
HLM <<<<< Scatter Diagram mas accurate - Mas mataas na income or CM, dapat damihan yung
sales
PRODUCT COSTING METHODS
(ABSORPTION VS VARIABLE COSTING METHOD) BENEFITS OF ABSORPTION COSTING
LIMITATION OF AC:
ABSORPTION VARIABLE THROUGHP
UT COSTING
- The more the production, the more inventory declared
sales same
(COS) DL, DM, FOH, DM, DL, DM ONLY BENEFITS OF VARIABLE COSTING
VOH VOH
GP ALWAYS HIGHEST
greater among all
than three
absorption
OPEX VOPEX VOPEX VOPEX
FOPEX FOPEX FOPEX
FOH FOH
DL - Less confusing kasi sa AB, ung ibang foh nasa balance
VOH sheet or income.
- Sa Variable, nasa expense or income statement
OI If production=sales, A = V =A=V=T
lahat ng FOH
Prod > sales = A > V =A>V>T
Prod < sales = A < V =A<V<T
Inventory Greater than V
LIMITATION OF VARIABLE/DIRECT COSTING
PROBLEM 1 333333333
4. Inventory, end under absorption
Beg + Produced - Sold
(150 + 1,500 - 1,200) = 450 units
450 units x 10 = 4,500
450 units x 8 = 3,600
450 untis x 3.20 = 1,440
CHANGE IN INVENTORY
1. Hanapin ung unit cost under each method
300 DIFFERENCE IN INVENTORY
- FOH/u = 3,000/1,500 units
- Or cost diffenrecne
Kung ano yung
product, yun ung
difference sa NET
INCOME from
ABSORPTION AND
2. Compute VARIABLE
Sales = Selling price x
units sold
COGS = Units sold x unit (Inv difference - Cost) - Variable Net income = Throughput Net
cost (10 x 1200) Income
OPEX 5. Ending inventory P=S, A=V=T
VOPEX = Vs&a costs x
units sold AC, EI = 150 (beg) x 10 = 1,500
FOPEX = F s&a costs
The same lang lahat except
COGS = 8 x 1,200
FOH = given na - SA 1,500 TINIMES KASI SOLD NA
Since P > S, A > V
6. P<S
COGS = 3.2 x 1,200
DM cost (3.20) – Total VMC (8.00)
DL & VOH = 4.80
- Di na hiniwalay - Add 480 to 27,300
A>V>T
PROBLEM 2
- Lumiit ending kasi maraming nabenta
PROBLEM 3
PROBLEM 6
- MAS MABABA AC, KAYA MINUS SA NI NG VC
PROBLEM 4
MORE PROBLEMS/EXERCISES
Income statement under Varaible costing method
- use contribution margin approach
- segregate Variable and Fixed component
Manufacturing CM = sales LESS Variable Manuf Cost
PROBLEM 5
Fgi end = ending inventory
3. Total fixed cost expensed in AC(close over under
applied)
- ACTUAL COST UNG KUKUNIN pag expense
- OVER APPLIED - deduct +
Throughput costing - UNDER APPLIED - add +
- Do not use the planned cost, KUNIN UNG FOH APPLID
- FOH rate x Actual activity level PRODUCED
Shortcut from TC to AC
PLANNED VS ACTUAL
SHORTCUT ABSOPRTION
(FOH + FSE + FAE)
Less: Fixed cost defer (130 prod - 125 sold) x FOH RATE
= Total FIXED cost expensed
SHORTCUT VARIABLE
Fixed cost actual = 2,120,000 → expensed immediately
FOH is not part of product cost
4. Total variable cost expensed in VC (close over under
applied)
> PRODUCED UNITS == UNITS SOLD
CVP TERMS
- VOH applied = rate x actual produced
5. Difference in OI
- Margin of safety - go down without incurring losses
6. Actual manufacturing CM - Actual sales - Break even sales = MOS
- MOS Ratio - lahat ng may margin denominator ang sales
- MOS / Actual sales = percentage
- DOL degree of operating Leverage
- Kung gaano kasensitive ung profit sa ating sales
- If ever may changes ang sales sa profit
- DOL = CM / OI
- CM = sales - VC
- CMu = SPu - VCu or CM / Sales unit
- CMr = CM/Sales peso or CMu/SPu
- VCu = VC / Sales unit
- Break even in units or sales → bawi mo lng
ung total cost mo
- Sales mix - constant ang sales mix to compare
performance
CHAPTER 4 - CVP
- Or breakeven analysis
- Analyze behavior of revenue cost or net income
Break-even = 0 ZERO Operating income
> VC = Units sold x VCu
> FC is constant
> Break-even point - TR = TC (= FC + VC) TR - TC = OI ;
> TC line > TR = loss TR = TC;
> TR line > TC line = profit SALES = VC + FC
SPu (x) = VCu (x) + FC (constant)
ASSUMPTIONS: - Hanapin ung x or units to be
sold
SPuX - VCuX = FC
X (SPu - VCu) = FC
→ CMU
> we assume that within the relevant range
Xbep units = FC / CMu
Xbep sales = FC / CMr
What if Desired Income? NO. 6
If may FCs or Advertising Expenses, add
- Madadagdagan ng 500 units ung sold
- Plus 10k FC
If nasa VC or SP, adjust sa denominator
- Hindi abot sa 50k target, So NO
EXAMPLE 1
NO. 7
- Kulang ng 550 units
PROBLEM 1
- CM = 400k x 75%
4. - OI = 300k / 4
PROBLEM 2
> BEP - VC = CM OR FC PROBLEM 8 - MARGIN OF SAFETY
> 0 Ang net income
> BEPCM = (40/120) x SALES
CM/SALES = CMu
PROBLEM 3
> BE SALES = FC / CMr
PROBLEM 9
PROBLEM 4
> walang sales na binigay
- Kinuha muna CMu x units sold = CMU > CM x 1.1 = new CM
- OI = CM - FC > same FC
PROBLEM 5 PROBLEM 10
PROBLEM 6 - BUDGETED NET INCOME
> pagsama sama lahat ng VC at FC
> then get Break even unit
> X unit = FC/CMu; X UNITS x SPu = peso sales
OR X peso = FC / CMr
> CMu = FC/SALES unit, CMr = FC/SALES peso
PROBLEM 7
PROBLEM 11
> ADD ALL FIXED COST
> 5% SALES COMM → PART OF VCu
> SPu x 5% = 2
PROBLEM 12 - X units, Max after-tax profit
4.
5. Original data ulit. Slash = decrease,
> maximum prof → compute sa 25k actual
1. 6. Same as statement no. 5 BUT
2.
BREAK-EVEN ANALYSIS WHEN MORE THAN ONE PRODUCT
PROBLEM 13
1. CMr, X, DOL
2. PROBLEM 15
3.
1. SM
2. CMu
3. WCMu
4. X
5. TOTAL X units
- X sales
ADDITIONAL PROBLEMS (CVP)
> BES = X peso sales
- IF WALANG CM OR OI
- % CHANGE IN OI AND SALES
PROBLEM 1 Problem 2
- or CMu = 50 - 28.8
- CM CHANGE = PROFIT CHANGE
- COMPARE SA BREAKEVEN, so ung change lang
sagot
Problem 7 - add FC
Problem 3 Problem 8 - add FC
Problem 4
Problem 9 - ADD FC AND VC
Problem 5
PROBLEM 10
- Flat commission - fixed
- Sales commission - variable
PROBLEM 11
Problem 6
- Workback
- SPu = CMu + VCu
1.
ACTIVITY BASED COSTING
SYSTEM
What is the true cost of a P/S?
- SAANG PURPOSE BA
2.
- Hindi magbabago ung CMu
PRODUCT COSTING ALLOCATION METHODS:
SINGLE PLANT WIDE OR TRADITIONAL
- Isang OH rate lang ginagamit
- Hindi ganun kaaccurate2
- 1 cost driver
Multiple prod Deptal rates
- Mas mahal or mahirap icompute
- Mas accurate
- Most appropriate cost driver
- Kung ilang dept, ganun karami ung rate
ABC (activity based costing
- Depends on the number of activities
- MOST accurate
- Allocation
- The more cost drivers, teh more cost being incurred
Regardless of what method:
Problem 2 - JIT, reduced to
HIERARCHY OF ACTIVITY LEVELS
Problem 3 - TRADITIONAL, USING DIRECT LABOR HOURS
UNIT LEVEL
- DM, DL, DLH, MH
Batch level
- Pag sobrang dami ng ittransport
- SETUP, ORDERING, MATERIAL HANDLING, TRANPO
COST
Product level
- r&d
- Magpeak or magddecline
Facility level
- General manufacturing process
- Halos OPEX na, pero depende ano ung iaassign
- Travel cost, directors fee, gen ad
- makukuha kahit hindi given ung DLH
- Identify if:
VA
- production activities
- Add value to the product
NVA NOTE:
- Ndi naiincrease If hindi binigay ung OH rate,
- Eliminating some NVA to lower cost without sacrificing - OH cost / Activity or cost driver
the quality of product
PROBLEM 3.1
ADDITIONAL PROBLEMS - 1
→ TOTAL OVERHEAD APPLIED
DEPTAL
COST PER UNIT
TOTAL COST
PROBLEM 4
ABC
> IF PROBLEM IS SILENT, KUNIN ung pinakamalaki na cost
driver kasi dun naka depend ung dept
SERVICE COST ALLOCATION
(DIRECT, STEP, AND ALGEBRAIC)
- Hindi lahat naiincur sa production natin (OH)
UNIT COST FOR EACH PRODUCT:
TRADITIONAL
EXAMPLE 1
TOTAL OH ALLOCATED TO DEPT A? Ung naka box lang
> equal before and after allocation
> IF SILENT, UNAHIN UNG MATAAS
> R&M → REPAIR HRS; HR → EMPLOYEES
> HINDI NA BABALIK SA R&M,, AFTER MAALLOCATE, tapos
ADD UNG NAALLOCATE FROM 1ST DEPT
- Allocate sa lahat, tapos algebraic method
EXAMPLE 2
STANDARD COST AND VARIANCE
ANALYSIS
STANDARD COST
- NO. of inputs required para sa output
- How MUCH material or labor or OH
- Budget - parehong predetermined
- More on per unit
- What should the company incur?
- Standard cost x actual level of activity
BUDGET
1. Performance report - actual vs budget
- More on total
2. Analyze - F or U
- What did the company plan to incur?
3. Raise questions sino kakausapin
- Ginagamit ang standard cost per unit x planned level
4. Root causes
of activity
5. Take actions -
6. Conduct next periods operations, cycle
VARIANCE ANALYSIS
- Actual vs standard
Ideal vs practical standard
- Investigate that are material
- Ideal - 100% expected
- We analyse, not just measure
- Practical - ito dapat ginagamit ng companies
- Kung sino ung in charge
S - specific
M - measurable
STANDARD COSTING SYSTEM
A - attainable
- Mabilis, may billing price agad
R - realistic
- Performance evaluation
T - timebound
- Every period
- Sinong managers nag sset ng standards
- Within the same industry
- Market prices
- Apple vs apple
- If material or significant
- BOTH favorable at unfavorable
PROBLEM 1.1 - spending or total cost (NO FLEXIBLE)
- revenue variance? 480k - 470k = 10k UNFAVORABLE
- TOTAL VARIANCE? = SRV + SPV
- TOTAL BUDGET = total income difference
- Equal sa total variance
- DEDUCT BUDGET ADN ACTUAL SA FIXED COSTS
- Only VC and revenue are adjusted 2. FLEXIBLE
- 480K * 2,000/470K or 480K * 85%
- Budget vs Actual lang, wala na ung orig budget
- HINDI GINALAW UNG FIXED COSTS
4) 5% higher Operating Income Variance
- PRICE AND QUANTITY VARIANCES
DM
BAKIT BA HINIHIWALAY UNG VARIANCES??
DL
OH
- Material price variance
- Price of PURCHASE - earliest time dapat
- Issuance
Material variances
LABOR VARIANCES
\
Labor variances
PROBLEM 1
1. AP per unit - Favorable KYA LOWER THAN 4.50
MATERIAL AT THE TIME OF PURCHASE 2. AQ USED - favorable (mas mataas SQ)
3. AQ USED - unfavorable (MAS MATAAS AQ)
MATERIAL AT THE TIME OF ISSUANCE
PROBLEM 2 - walang SR, kunin sa LRV
Materials usage price variance
- Time of issuance
Materials price variance
- Time of purchase
OVERHEAD VARIANCES
ONE WAY - ACTUAL AND APPLIED
PROBLEM 3
1. EST. DLH - kunin sa standard labor cost (SH x SR)
TWO WAY - controllable and noncontrollable
2. NUMBER OF UNITS PRODUCED
- Contro = budget → di kasama BAAH
THREE WAY
3. LABOR EFFICIENCY VARIANCE
PROBLEM 4- LRV, pero walang AH kaya kukunin sa LEV
FOUR WAY
PROBLEM 6 -
6. VOH EV
7. FOH SV - FOH RATE X NC
NC = 80,000 units (HOURS PER UNIT)
1. MPV - walang sinabi kung purchase or issued
8. FOH VV
2. MQV - SQ = Actual output x Standard quantity
9. Controllable OH
TOTOL MAT VARIANCE = PLUS PAREHO
3. LRV - AR = total cost / dlh; AH = actual output lang
4. LEV - SH = Actual output x standard hour
OR
10. TOTAL OH VARIANCE
BUDGET + VOLUME VARIANCE
5. VOH SV
- Pag
MIX AND YIELD VARIANCES
STANDARD INPUT COST - sa standard quantity input
STANDARD OUTPUT COST sa standard quantity output
Problem 1 PROBLEM 1
1. MPV - silent problem, BUT WALANG PURCHASE
UNITS, so ISSUED/USED ginamit
2. Materials mix variance (equal ang AM at SM)
4. Allowed SH PER UNIT
5. LEV
3. Materials yield variance
- konti ng yield kaya
UNFAVORABLE
- KAHIT ANO
GAMITIN
—------------------------------------------------------------------------------>>>>
Problem 2 - may times na more than 1 ang purchase date PROBLEM 3
- Variances - account ONLY to those na HINDI
nammeet ung standard
1. MPV
1. Mpv
2. MMV
2. MMV
3. MYV
- SM = AM TOTAL ALLOCATE TO QUANTITY
3. MYV
STANDARDYIELD =
OR
4.
5. Overhead variances
