2 - Chapter 1: Accounting in Business (pgs. 17-20)...

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: Chapter 1: Accounting in Business (pgs. 17-20) Financial Statements Annual Report (form 10-K) [Complete set of...] Balance Sheet Income Statement Statement of Owner's Equity Statement of Cash Flows 18:34 "Score cards" from The Hershey Company 1 !" $%" $&% ' ( )*+,&" %" '- ).- *+,&"/%0 ()*+,&" ## # # # ## # # # ## # Asset Something the company owns. Cash Literally money in the bank. Cash equivalents Stamps, etc. Accounts receivable Amount of money owed by others Inventory Finish product waiting to be sold. Property Land Plant Manufacturing plant Equipment Desks, assembly lines, etc. Liabilities Anything the company owes. Accounts payable Amount of money owed to others (short term) Long-Term Liabilities Amount of money owed to others (long term) Stockholders' Equity (or Capital) Represents the amounts of money that investors put in. Assets = Liabilities + Equity. Practice Question: If the liabilities of a business increased $75,000 during a period of time and the owner's equity in the business decreased $30,000 during the same period, the assets of the business must have: A. Decreased $105,000 B. Decreased $45,000 C. Increased $30,000 D. Increased $45,000 E. Increased $105,000 Users of Accounting Information Internal Users: Managers Officers/Directors Staff External Users: Lenders (banker, creditor) Lending money to the company Shareholders (stockholder, investor) External Auditors Government Customers Income Statements (Statement of incomes, Profit and Loss Statement, Statement of earnings, etc.) 1 1" 2*/230 &4% 1*/15*0 *. +.64% '4% !4% (44% 2! # # # # # # ## Net Sales (or Net Revenue) The value of what the company has sold Costs and Expenses What it takes to run the company Costs of Sales (or Cost of Goods Sold) The cost of making the product being sold (sugar, milk, cocoa beans, employees, etc). Products in the factory. Selling, marketing and admin. Expenses Commercials, legal functions, advertising Interest Expense Tax Expense Net Income (Profit) Tells if you are making any money Revenue (sales) Expenses = Income (profit) ## '%. !. 7. . / # 0 / 0 # 6 ## !" $%6 $&%6 ' ( )6&" %" '- ).- &"/%0 ()6&" 6 ## !" $%6 $&%6 ' ( )6&" %" '- ).- &"/%0 ()6&" ## # # # ## # # # ## # ## 2*/230 &4% 1* *. +66 '4% !4% (44% 2! # !"# ## % ..1" 8!"9 82! -:9/660 ;% 1" # # 1st way - Balance Sheet (left) Statement of Cash Flow (top) Balance Sheet (right) 2nd way Balance sheet (left) Statement of Owner's Equity (bottom) Balance sheet (right) 3rd way Income statement (middle) Statement of Owners' Equity (bottom) Expanded Accounting Equation Assets = Liabilities + Equity Equity: + Owner Investments - Owner Withdrawals + Revenues - Expenses !"# ## % ..1" 8!"9 82! -:9/660 ;% 1" # # Withdrawals (dividends) Own a share, sit back and collect a check. Tracks how much owners put into a company. My Balance Sheet: Create a list of your assets 1999 Cabrio Volkswagen 1 Subwoofer White Macbook Living room furniture (couch, entertainment center, coffee table, dinning room table w/ 4 chairs, 3 living room chairs) 17" Flat screen television Yamaha receiver Phillips DVD player Yamaha 6 disc CD player 4 Yamaha speakers, 1 subwoofer School textbooks Example Problem The Jacob Company reported the following: Owner Capital, January 1, 2006 64,000 Advertising expense 1,800 Owner withdrawals 7,000 Rent expense 10,400 Service revenue 58,000 Utilities expense 2,400 Salaries expense 28,000 During 2006, the owner invested an additional $20,000 into the company. After analyzing the data above, prepare an income statement and a statement of owner's equity for the year ending December 31, 2006. Balance Sheet Service Revenue Cost and Expenses Salaries expense Rent expense Utilities expense Advertising expense Net Income Statement of Owner's Equity Capital, Jan. 1, 2006 58,000 28,000 10,400 2,400 1,800 15,400 64,000 +Investments by owners +Net Income -Withdrawals (dividends) Capital, Dec. 31, 2006 20,000 15,400 7,000 92,400 Statement of Cash Flows: 2007 Operating Activities 778,836 Investing Activities (304,353) Financing Activities (442,426) Change in Cash 32,057 Tracks literal dollars coming into a company Buying (money going out) investing activity Operating Activities Made more money than spent Investing Activities Spent more than what they got (negative number is pretty good) Spending money into the future by buying new equipment, land, etc. Financing Activities Spent more than what they got Paying off money that they owe Example Problem XYZ Company: Balance Sheet KEEP AN EYE ON NEGATIVES AND POSITIVES! A 33,000 B 65,000 C 42,000 D 28,000 E 28,000 Master Budgets and Planning 18:34 Master Budget Components Operating budgets Sales budget Purchases or production budget Selling, general and administrative budget Capital expenditures budget Financial budgets Cash budget Budgeted income statement Budgeted balance sheet Iphone 3G (8GB): 2008 January February March April May June July August September October November December Total Volume 0 0 0 0 0 0 400 400 600 300 300 500 2,500 Price Total $200 $200 $200 $200 $200 $200 $80,000 $80,000 $120,000 $60,000 $60,000 $100,000 $500,000 Master Budgets and Planning Initial demand/type Availability Seasonal issues Competition Technology 18:34 Merchandise Purchase Budget Budgeted Sales for the period + Budgeted Ending Inventory Budgeted Beginning Inventory = Inventory to be Purchased (or produced) For August: 400 + 120 50 = 470 Assuming: 20% of next month's sales Units on hand at end of July Example Problem: Purchases Budget Jackson Furniture Company buys and sells tables; its 2008 sales budget is as follows: Qu U art er n i t s 1 5 0 0 7 0 0 8 0 0 1 , 2 3 4 Master Budgets and Planning 18:34 0 0 0 The January 1, 2008 inventory is 80 tables. Management desires an ending inventory each quarter equal to 20% of the next quarter's sales. Each table costs $300 which is expected to increase by 20% in Q3. Prepare a quarterly purchases budget (quarters 1-3 only) for the year. Purchases Budget 1 2 3 500 700 800 Budgeted sales (in units) Desired ending inventory percentage Budgeted ending inventory Total units required Beginning inventory Requires purchases (in units) Cost per unit Total of purchases 20 % 20 % 20 % 140 640 80 560 $30 0 $16 8,00 0 160 860 140 720 $30 0 $21 6,0 00 200 1,0 00 160 840 $36 0 $30 2,4 00 Project #1 Posted on blackboard tomorrow Bring project document to class on Tuesday Example Problem If Jackson Furniture Company has a budgeted sales price of $400 per unit, prepare a budgeted income statement for 2008 (quarters 1-3 only). 1 2 3 Master Budgets and Planning Budgeted Sales (in units) Price Total Sales 18:34 500 $40 0 200, 000 150, 000 50,0 00 700 $40 0 280, 000 210, 000 70,0 00 800 $40 0 320 ,00 0 288 ,00 0 32, 000 Less Expense Cost of Sales Budgeted net income Prepare a budgeted balance sheet (inventory section only) for 2008 (quarters 1-3 only). 1 2 3 Assets Inventory Cash Budget Beginning cash + Receipts (collections) Disbursements (payments) = Ending Cash Example Problem Jackson Furniture Company makes all sales on account and expects that 70% of the sales will be collected in the quarter of sale and 30% will be collected in the following quarter. The company pays for all purchases in the quarter of the purchase. The company also pays quarterly wages of f$300,000 and expects to give its employees a 5% pay raise in Q2. If the company had cash of $60,000 on hand at January 1, prepare a cash budget for Q1-Q3. Get answer online! Sales from Q1 Q2 Q3 $140,00 $60,0 Q1 (200,000) Master Budgets and Planning Q2 (280,000) Q3 (320,000) Total Cash Receipts 18:34 0 00 196,0 00 $84,0 00 224,0 00 $308, 000 Q3 $10,5 00 308,0 00 302,4 00 31,50 0 ($15,4 00) $140,00 0 Q1 $60,00 0 140,00 0 168,00 0 30,000 $2,000 $256, 000 Q2 $2,000 256,00 0 216,000 31,500 $10,500 Beginning Cash Balance Cash Receipts Cash Payments Purchases Wages Ending Cash Balance Chapter 18 (pgs. 718-723, 725-731) 18:34 How do you decide the cost of a Hershey's bar? Ingredients Cocoa Packaging: wrapper Sugar, water, caramel Milk People that make the candy bars The machines used to make the candy The factory itself Wages for assembly crew Wages for maintenance staff Salaries of plant managers Advertising Shipping Rent on Office building Salaries of support Classification of Costs By function Product costs (DM, DL, OH) anything that relates to literally producing the product Direct material In the finished goods Direct labor somebody hands literally pushing the buttons Overhead machines; stuff that you need to make the product but is not in it. Chapter 18 (pgs. 718-723, 725-731) 18:34 Period costs selling and administrative costs By traceability Direct costs Is it directly traceable? Indirect costs Is it indirectly traceable but still related to the good? By behavior Fixed cost Variable cost Mixed cost Example Problem Snapper Company specializes in manufacturing a unique model of bicycle helmet; related data is below: Rent of factory equipment Product cost (OH) $6,000 Insurance on factory building Product cost (OH) 1,500 Raw materials (plastics, etc.) Product cost (DM) 70,000 Utility costs for factory Product cost (OH) 900 Supplies for general office Period cost 300 Wages for assembly line workers Product cost (DL) 46,000 Lease payments on office equipment Period cost 800 Miscellaneous materials (lubricants, etc.) Product cost 1,100 (OH) Factory manager's salary Product cost (OH) 5,700 Property taxes on factory building Product cost (OH) 400 Advertising for helmets Period cost 11,000 Sales commissions Period cost 7,000 Rent on factory building Product cost (OH) 1,500 Classify each type of cost. Determine the cost to produce each helmet, if 10,000 were made. Per Unit Product Costs Direct Materials Direct Labor Mfg Overhead Total Production $70,000 $46,000 $17,100 $133,100 $13.31 Chapter 18 (pgs. 718-723, 725-731) Costs Period costs Total Costs $19,100 $1.91 $15.22 18:34 18:34 Get Notes! Missed class on 2/17/2009 Computing Sales for Break-Even Point Unit Example Problem Joe Vida owns the Peace Barber Shop. He employs five barbers and pays each a base rate of $1,200 per month. One of the barbers serves as the manager and receives an extra $600 per month. In addition to the base rate each barber also receives a commission of $3.50 per haircut. Joe charges $10.00 for each haircut. Other costs are as follows: Advertising $200 per month Rent $800 per month Barber $0.30 per month Supplies Utilities $175 per month plus $0.20 per haircut Magazines $25 per month Determine the variable cost per haircut and the total monthly fixed cost Compute the break-even point in units Answer: Variable Cost (per haircut) Commission Supplies Utilities Total Variable Costs Fixed costs (per month) Salaries Managers extra salary $3.50 $0.30 $0.20 $4.00 18:34 Computing Net Income (Unit Price x Volume) (Unit Variable cost = Volume FC)= Net Income Volume Uni Tota Sales Revenue $10,000 t $18 .00 $13 .63 $4. 37 l $18 0,00 0 $13 6,30 0 $43, 700 Less: Variable Cost Contribution Margin Less: Fixed Costs $15, 900 $27, Net Income 800 Should the company lower the price by $1 per unit if that would result in an increase in sales volume by 5%? Volume Unit Total $10,500 $17.00 $178,500 Sales Revenue Less: Variable Cost Contribution Margin Less: Fixed Costs Net Income $3.37 $35,385 $15,900 $19,485 $13.63 $143,115 18:34 Don't do it!!! Doesn't make sense! Sensitivity Analysis Versus the original plan, Snapper Company is considering switching to higher quality plastic for its helmets which would improve their durability. If the company makes the change, variable costs would increase by $0.50 per unit; furthermore, the Sales Manager estimates that sales would improve by 10% provided the company does not change the current price. Should the company make the change? Volume Unit Total Sales Revenue Less: Variable Cost Contribution Margin Less: Fixed Costs Net Income $3.87 $42,570 $15,900 $26,670 $11,000 $18.00 $14.13 $198,000 $155,430 Sensitivity Analysis Versus the original plan, Snapper Company is considering switching its compensation plan for its sales personnel in order to improve morale. Currently, the company pays commissions only, but under the new plan would replace of the commission with a base salary of $4000. If the company makes the change, sales are estimated to improve by 5% provided the company does not change the current price. Should the company make the change? Volume Unit Total $10,500 $18.00 $189,000 Sales Revenue Less: Variable $13.28 $139,440 18:34 Costs Contribution Margin Less: Fixed Costs Net Income $4.72 $49,560 $19,900 $29,660 Review 18:34 Practice Exam: 2. ...
View Full Document

Ask a homework question - tutors are online