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Unformatted text preview: Us (# units in beginning inventory * % complete) Predetermined overhead rates Used to allocate indirect costs (review this term). What are predetermined overhead rates? Why are they desirable? Why not use actual rates? What happens to the difference between actual and applied overhead? Apply based on what (cost drivers)? Allocate fixed vs. variable separately? Total Cost Formula TC = vc/u (units) + FC Estimating cost behavior: HighLow method Mixed Cost scattergraph method Least Squares Regression, concept See [Excel Tools Data Analysis Regression] Confidence Intervals How overhead allocation transactions effect accounts Overhead allocation is compared to Actual overhead costs Under/over applied overhead to Cost of Goods Sold, OR Under/over applied overhead to WIP, CGS, F/G Contribution Format Income Statement vs. Traditional Format Sales Less: Cost of Goods Sold Gross Profit/Margin Less: Operating Expenses Net Income Sales Less: Variable Costs Contribution Margin Less: Fixed Costs Net Income Note: Sales and Net Income are the same under both methods. While total costs are the same under both systems, they are organized differently (cause vs. behavior), leading to different formats. Thinking ahead: be able to do the contribution margin format in both $$ and % of sales. CostVolumeProfit Analysis (CVP) Review: Total Cost Formula: TC = vc/u (units) + FC Review: Contribution Margin Income Statement: Sales Less: variable costs Contribution Margin Less: fixed costs Net Income (before taxes) Now, let's play with these two formulas. What if: Variable cost per unit changes? Number of Units change? Fixed costs change? Also, what if selling price changes? How does that effect contribution margin? Contribution Margin Ratio Contribution margin ratio is the contribution margin/sales Breakeven point Break even uses the same formulas as above but net income is always zero. Find breakeven volume Find breakeven price Target Profit Analysis Same as breakeven, except net income is a given number other than zero. Find target volume Find target price Other Ratios & Analysis Margin of Safety (usually in Sales dollars): Amount that current sales $ exceed breakeven sales $ Operating Leverage: contribution margin/net operating income Variable Costing
Overview: What we have been doing thus far is absorption costing. That is, product costs have included direct materials, direct labor, variable manufacturing overhead and fixed manufacturing overhead. Another costing system, which is NOT GAAP, is sometimes used internally. "Variable costing" includes as a product cost only direct materials, direct labor, and variable manufacturing overhead; it does not include fixed manufacturi...
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- Spring '08
- Managerial Accounting