Summary of Formulas, Notes & Exhibits

Summary of Formulas, Notes & Exhibits - Summary of...

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Exhibit 8-3 Standard Cost Formulas Materials – Materials Price Variance = (AQ x AP) – (AQ x SP) Material Quantity Variance = (AQ x SP) – (SQ x SP) Where AQ Actual Quantity of Inputs Purchased AP Actual Price of Inputs Purchased SP Standard Price of Inputs SQ Standard Quantity of Inputs allowed for Actual Output Labor – Labor Rate Variance = (AH x AR) – (AH x SR) Labor Efficiency Variance = (AH x SR) – (SH x SR) Where AH Actual Labor Hours AR Actual Labor Wage Rate SR Standard Labor Wage Rate SH Standard Labor Hours Allowed for Actual Output Summary of Formulas and Textbook Exhibits Revised as of November 28, 2007 Page 1 of 19 1
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Variable Overhead – Variable OH Spending Variance = (AH x AR) – (AH x SR) Variable OH Efficiency Variance = (AH x SR) – (SH x SR) Where AH Actual Hours (usually labor hours) AR Actual Variable Mfg OH Rate SR Standard Variable Mfg OH Rate SH Standard Hours Allowed for the Actual Output Mixed Cost Formula Y = a + bX Where Y Total Mixed Costs a Total Fixed Cost b Variable Cost Rate X Activity Level Contribution Margin Formula Contribution Margin Ratio = Contribution Margin* Sales * CM = Sales – Variable Costs CM Ratio/Unit = Unit Contribution Margin Unit Selling Price Summary of Formulas and Textbook Exhibits Revised as of November 28, 2007 Page 2 of 19 2
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The cost of goods manufactured refers to the costs of goods that are completed and ready for sale during the period. Financial Accounting vs. Managerial Accounting Characteristics Financial Accounting Managerial Accounting End Users of Data Reports to Shareholders, Directors, Lenders, Regulators & other outside parties (i.e. IRS Reports to those inside company for planning, directing & motivating, controlling and performance evaluation Emphasis of Reports Financial consequences of past performance – summary of what has happened Decisions affecting future (i.e. planning) – requires use of estimates Relevance of Data Data should be objective & verifiable Data must be relevant (i.e. appropriate for the problem at hand ) and may require use of Emphasizes Precision Timeliness Objective of Reports Summary data concerning company as a whole Detailed reports regarding departments, products, GAAP Must follow GAAP GAAP not required Other External financial reports requires use of historical data Managerial accounting reports may require use current cost data Manufacturing Costs (a.k.a. inventoriable costs): a. Direct Materials – are those materials that become an integral part of a finished product and can be conveniently traced into it (i.e. tires on a car); Summary of Formulas and Textbook Exhibits Revised as of November 28, 2007 Page 3 of 19 3
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Note: Indirect materials are small material items (i.e. glue) which are too costly and inconvenient to trace such small costs to individual units. b.
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Summary of Formulas, Notes & Exhibits - Summary of...

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