BUSI 101 1st Edition Lecture 20Outline of Last Lecture I. Absorption Costing versus Direct Costing ReviewII. Page 105 in CoursepackIII. Page 106 in CoursepackIV. E-63V. E6-18VI. E6-3AVII. P6-7AOutline of Current Lecture I. Chapter 6 Multiple Choice Questions Reviewa. Absorption versus direct costingII. Chapter 7 Introduction to Decision Makinga. Make or Buyb. Joint Dealsc. Special Dealsd. Selection of most profitable productCurrent LecturePage 222 in the Coursepack19-20These 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.Absorption Costing Direct CostingSales 1,400,000-CGS $810,000 DM (DM,DL,V=9) DL VOHD FOHD (450)=GM 590,000-Op Exp. V 98,000 F 130,000=π362,000Sales 1,400,000-VC DM $540,000 DL VOHDV Op Exp. 98,000=CM 762,000-FCFOHD 35,000 FS+A 170,0000=π317,000Diff. in π=(10,000)(450)=$45,00021. Beg. Inv. 8000+Produced 100,000=Avail. 108,000-End Inv. 3,000=Sold 105,000If P<S, then ACπ<DCπ40,000<60,000difference in π=(5000)(4.00)=20,00060,000-40,000=20,00022. if P>S, then ACπ>DCπ11,200>10,000difference in π= (1200)(3)=3600Chapter 7 –Decision Making Themes:1. Relevant Cost: a) pertains to the future, b) differs between or among alternatives2. Direct Costing Income StatementPage 121 in Coursepack – Make or BuyPage 122 in Coursepack – Special DealsPage 123 in Coursepack – Joint CostsSelection of Most Profitable Product – extension of Chapter 6Continue or Discontinue a Product LinePage 121 – Make or BuyMAKE BUYUNIT TOTAL UNIT TOTALDM $5 10,000 $23 $46,000DL $5 10,000VOHD $10 20,000FOHD $5 10,000 $5 10,000Total $25 $50,000 $28 $56,0001. MAKE, unless they can rent out facilities for more than $6,0002. BUY because: 28-5=$23, $56,000-10,000=$46,0000***FOHD, unless told otherwise, is irrelevant for decision-making purposes3. MAKE BUYUNIT TOTAL UNIT TOTALDM $5 20,000 $23 $92,000DL $5 20,000VOHD $10 40,000FOHD $2.50 10,000 $2.50 10,000Total $22.50 $90,000 $25.50 $102,0003. Still cheaper to MAKE unless there is a $10,000 alternative use of facilities4. Cost to Make = Cost to Buy20x+10,000=23x+10,000-10,00020x=23x-10,0003x=10,000x=3333 1/3BUY IF <3333 1/3MAKE IF >3333 1/3Page 122 – Special Deals** Similar to High Low MethodCost Units$49,000 1000$47,500 950$1500 50 VC per unit=$1500/50=$30Y=a+bx49,000=a+30(1000)a=19,000SP $120-VCPR $92 Pe $8=CM $20 x150 units = $3000 better off, DO ITPage 123 – Joint CostsT=20,000@$6=$120,000195,000 (split off point)W=40,000@$4=$160,000$280,000 exceeds joint cost, YES you are making moneyT WIncremental Revenues 60,000 40,000-Incremental Costs 52,000 47,000=Incremental Profit 8,000 (7,000)Page 1241. NICHOLSONSP $.72-VCDM $.15DL $.30 VOHD $.25=CM $.02x20,000=$400 better off, additional profit3.HEARNSales-VC=CM-DIRECT/CONTROLLABLE FC=SEGMENT MARGIN OR CONTROLLABLE MARGIN-ALLOCATED OR INDIRECT FC=PROFITIf segment margin is positive, keep the divisionIf segment margin is negative, eliminate the divisionX+Y, Profit = 25Y100(74)26(28)(2) – eliminate the divisionJUST XSales 150-VC (61)=CM 89-FC (62)=Profit 27Only Produce X3. Stilts Wilts$5 $7x6 x4$30 $28x10,000 x10,000$300,000 $280,000producing all stilts, would maximize contribution margin4. Sell Now Repair and Sell Later(100,000) (100,000)22,000 (40,000)(78,000) 58,000(82,000)$4000 advantage to sell