BUSI 101 1st Edition Lecture 18Outline of Last Lecture I. Accounting GraphsII. Total Cost EquationIII. Page 95 in CoursepackIV. Absorption Costing versus Direct CostingV. TaxingVI. Changing ParametersOutline of Current Lecture I. Page 223 in Managerial Accounting Textbooka. E5-1b. E5-11c. E5-14d. E5-2AII. Chapter 6 Overviewa. Absorption Costing versus Direct CostingIII. Page 104 in CoursepackCurrent Lecture- Exam Monday 5/4 at 7am for 9:30 BUSI section- Optional Review Session at 12pm on Sunday 4/26These notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.Pg. 223 in Managerial Accounting TextbookE5-1) If VC per unit doesn’t change like in DM & DL you have a pure variable costIf FC doesn’t change you have a pure FCIf TC and TC per unit changes then you have a mixed costE5-11)SP=$36000/1440=$25 per fareVC=$9000/1440=$6.25 per fareTFC=$15,000CM=25-6.25=18.75 per fareCMR=18.75/25=.75 or 75%A2)15,000/18.75=800 faresA1)800x$25=$20,000B) CM @ Break Even Point=TFCCM=15,000E5-14)Sale 1,950,000 = 150 per unit (13,000)-VC 1,170,000= 90 per unit (13,000)=CM 780,000 = 60 per unit (13,000)-TFC 570,000 =Profit 210,000A) 60x13,000=780,000B) aSales 1,950,000 -VC 1,170,000=CM 780,000 60 percent 832,000-TFC 570,000 570,000=Profit 210,000 262,00060x13,867=832,000C) SP(13,000)-90(13,000)-570,000=262,000 unitsSP(13,000)-1,170,000-570,000=262,00013,000SP=2,002,000SP=$154E5-2A)Sales 1,800,000 (3,600,000 x .50) 100%-VC 1,260,000 (3,600,000 x .35) 70%=CM 540,000 (3,600,000x.15) 30%-FC 405,000 =Profit 135,000B) 405,000/.15=2,700,000 units2,700,000x.50=$1,350,000OR405,000/.3=$1,350,000C)30%=CMRMargin of Safety Ratio =(3,600,000-2,700,000)/3,600,000=25%**Sales can go down by 25% and the company will still break evenD) (405,000+180,000)/.30=$585,000/.30=$1,950,0000P5-4A)Current Mary’s SuggestionsSales ($40x20,000) $800,000 $912,000 (38x24,000)-VC (24x20,000) $48,000 $576,000 (24x24,000)=CM (16x20,000) $320,000 $336,000-FC $270,000 $294,000 =Profit $50,000 $42,000A) Current: 270,000/16 per unit=16,875 unitsMary: 294,000/14=21,000Mary’s higher break even point makes us more at riskB) Margin of SafetyC: (20,000-16,875)/20,000=15.625%M: (24,000-21,000)/24000=12.5%C) NOChapter 6 - focus on the appendix- Compares absorption costing statement with the direct costing statement- Page 104 in Course packAbsorption Costing/Traditional Costing /Pull CostingSales-CGSDMDLVOHDFOHD=GP-S+AV F=πDirect CostingSales-VCDMDLVOHD V S+A=CM-FCFOHD FS+A=π**main difference is fixed costing, everything else stays the sameChapters 1-5- If production=sales: ACπ =DCπ (inventories remain the same)Chapter 6- If production>sales: ACπ>DCπ (inventory increases)- If production<sales: ACπ<DCπ (inventory decreases)In AC, Fixed Overhead is treated as a product costIn DC, Fixed Overhead is treated as a period costDifference in π=△¿inv)(FOHD/unit)Product costs under AC: DM, DL, VOHD, FOHDProduct Costs under DC: DM, DL, VOHDPage 104 in Coursepack – only fixed overhead will be different (difference between absorption and direct)Problem = a summary of the chapter-No beginning inventoryProduced 10,000 unitsCost of Units = DM 100,000DL 110,000VOHD 150,000FOHD 250,000Sold 8,000 units at $70 per unitVSGNA $3 per unit soldFSGNA $14,0001. What is the ending inventory in units? 2000O+10,000-8,0002. What is the product cost per unit under absorption costing? $61 per unitPC=DM+DL+VOHD+FOHD - $610,000/10,000 units3. What is the product cost per unit under direct costing? $36 per unitPC=DM+DL+VOHD $360,000/10,0004. What is the ending inventory under absorption costing? 122,0002000x615. What is the ending inventory under product costing? 72,0002800x366. What is the absorption costing profit? $34,0007. What is the product costing profit? (16,000)ACSales 560,000-CGSDMDL 488,000VOHD FOHD=GP 72,000-SG+AV 24,000 F 14,000=Profit 34,000Product CostingSales 560,000-VCDMDL 288,000VOHD VSGNA 24,000=CM 248,000-FCFOHD 250,000 FSGA 14,000=Profit (16,000)8. Reconcile the difference.(2000)(25) =$50,000E6-17) page 277 in the textbookA) Under DC: product cost per unit=DM+DC+VOHD7.50+7.45+5.80=15.75B) BelowC) Under AC: product per unit=DM+DL+VOHD+FOHD7.50+2.45+5.80+2.50=18.25D) (10,000)(2.50)=25,000225,000/90,000=2.50AC:Sales 2,000,000-CGS 1,460,000=GP 540,000-S+AV 312,000F 240,100Profit = (12,100)DC:Sales 2,000,000-VC 1,260,000 312,000=CM 429,000-FCFOHD 225,000FS+A 240,000=Profit