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Week 1 Mod 1 Screens - Learning Exercise tfli'indiju-rs...

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Unformatted text preview: Learning Exercise - tfli'indiju-rs Internet Explorer 3. Walk me through a similar problem In this exercise we are still working with the three inventory accounts for a manufaduring entity. However, our focus in this A MANUFACTURING COMPANY exercise will be on the relation betiiireen the WIP inventory account andtlie Finished Goods inventory account The Three Invenm accaunts _ _ Finished Goods inventory account is similar to the Merchandise / a Fin'3h3d Inventory account you studied when working with retail entities. girsctBl-rllatsrial Goods eg. a . . . . . Puchases In this exercise we are doing the accounting that represents movement ofthe product from the production line to the warehouse when the product is complete and ready forsale. ln accounting this movement is termed the Cost of Goods Manufactured CGM and is calculated by addingtotal manufactunng costs to the beginning balance in WIF' inventory and then subtracting the ending balance in WIP inventory. Key Calculation EndB al I CGM = \l‘rlFI Eleg. Elal. +Total Manufacturing Coat - WIP End. Bet. You should recall thattotal manufadunng costs include all the costs that are involved in making the produd and consist of direct materials used, direct labor, and manufactunng overhead. These costs were accumulated in the WIP inventory account and are viewed as being attached to the product and inventoried as we did for merchandising entities. E " Internet Explorer Walk me through a similar problem Prior to this point we looked at costs that were stricliy fixed or stri ctiy variable. A mixed cost is just that-a mixture of a fixed and a variable cost. Many overhead cost are what is referred to as a mixed cost. There are numerous approaches one can taketo determine how much ofthe overhead cost is fixed and how much is variable. Fixed Cost One ofthe more popular approaches is theso—called High— Low method. Very ofien however, the high and or low values are not representative ofthe normal cost behavior and two more representative data points are substituted for the high and lowvalues. Once the fixed and variable cost components have been isolated, one can easily forecast overhead costfor a particular activity level as is required in the budgeting process. E Ffimdlifiorr f GJJJJJ;%JM"_ Learning Exercise - \fll'indauu's Internet Explorer ‘\ 1‘ Walk me through a similar problem X You have miscalculated. Using the data points for months 2 and 9 the variable rate atwhich ovemead costs are incurred is $2.20 per labor hour billedwhich is calculatedasfollows: F'rEIf. Leber Tetel Heurs Dverheed Changein 0H costiChangein laborhours Elilled nests 'l'llIIEI $11 ,AIIIEI $4,230 $12 ,EEIEI $4,??5 $4,?EIEI $5,25El {$5.550- $4,230].l( 1,600— 1,0001Hours $1,320r600hours =$2.20.‘hour Nowthatwe have determinedthat$220 is the variable rate atwhich overtiead costs are incurred, we can usethat value along with the values of eitherthe data forweel: 2 or 9to determine the fixed overhead costs bysubstitutihg them in the following equation: ELDIII‘HID'JLl'l-JEILIJMA Total Cost:52.20*HoursElilled+Fixed cost Usingthe data values for month 2 calculate fixed overhead costs? Fixed overhead costs =5 |:| ' Learning Exercise - IWind: '5 Internet Explorer Walk me through a similar problem \/ Good observation! In this case the data fits astraight linewell. F'ref. Leber Tetel Let us now calculatethe ditTerence in costs between the Heurs Dverheed high andtiielow data points.These data points are Elilled nests highlightedin yellow on thewhiteboard. Noteli'iattiiesetwo 11m] $4.4m: data points aretlie second highest and second lowest and 1000 $4 230 ifyou recallthese and allthe other data points could be 2ElElEl $12I5E|E| fiairiy well represented by a straight line. ' g I: : _. :— Usingthose two data points calculatethe increase in overhead costs that results for each additional professional labor hour billed. This would be thesame as calculating the slope oftheline. madam = as IZILDIII‘HID'JLI'IJEILIJMA \/Correcl_|' Now let's calculate fixed overhead costs. Nowthatwe have determinedlhat$220 is the variable rate atwhich overhead costs are incurred, we can usethat value along with the values of eitherthe data forweel: 2 or 9to determine the fixed overhead costs bysubstituting them in the following equation: Total Cost:°52.20*HoursElilled+Fixed cost Usingthe data values for month 2 calculate fixed overhead costs? Feedback f 244444;%M"_ ...
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