ACCT 2020 1st Edition Lecture 11 Outline of Last Lecture I Review II Steps To Variable Costing III Comparison IV Segment reporting V Omission Costs VI GAAP VII Examples Outline of Current Lecture I Terminology Review II Terminology Review III Exam Review Current Lecture I Terminology Review Predetermined overhead rate POHR taking some type of overhead cost and divide it by some activity level o Predetermined overhead rate Total Estimated Manufacturing Overhead Total Estimated Activity in the Allocation base These 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 We should believe that this allocation base is DRIVING this manufacturing overhead We use this rate to apply overhead to jobs and compare it to the actual overhead at the end of the year Applied Overhead POHR x relevant activity At the end of the year we compare this applied overhead to the overhead actually incurred at the end of the year Things like rent property taxes supervisor s salaries etc Actual overhead sum of all bills relating to overhead o Actual Overhead Applied Overhead under or over applied Overhead If the actual is greater than applied than it is under applied We would ADD this amount to cost of goods sold If Actual overhead is less than applied than we have over applied overhead and will need to SUBTRACT this amount from Cost of goods sold II Terminology Review Exercise 5 3 o Begin Inventory End Inventory Change Inventory 1 2 180 3 150 160 150 30 160 10 200 40 o Fixed Mf OH begin Unit sold x 450 Fixed Mf OH End Unit sold x 450 CHANGE Fixed Mf OH 81 000 67 000 72 000 67 000 72 000 90 000 13 500 4500 18000 o Variable NI 292400 269200 251800 Change in Mf OH 13 500 4500 18000 Absorption NI 278900 273 700 269800 Absorb NI Variable NI Absorption NI Variable NI Inventory Decreased Inventory Increased Exercise 5 4 o Sales Variable Expenses Contribution Margin Traceable Fixed Expenses Product line Segment Common Fixed Expenses TOTAL CD DVD 750 000 300 000 450 000 435 000 120 000 315 000 315 000 180 000 135 000 183 000 138 000 45 000 132 000 42 000 90 000 105 000 Net operating Income 27 000 Exercise 5 5 o According to CVP analysis we should have had a net income but we had a loss why We have to separate our costs in variable and fixed expenses to work with the contribution margin It is in line with a variable costing system so if we use absorption system it will seem to show a meeting the break even point The difference relates to where that fixed manufacturing overhead is sitting When inventory decreases IN absorption costing net income is less than when using variable costing methods The reason is because the inventory decreased which resulted in fixed overhead from prior years being applied to current years Exercise 5 6 o During the last year 30 000 units were produced and 25 000 units were sold Inventory account shows a balance of 85 000 for the 5 000 unsold units Variable cost unit 10 5 2 17 unit Variable inventory cost 17 30 000 510 000 17 25 000 425 000 85 000 Absorption cost unit 10 4 2 90 000 30 000 3 20 unit Absorption Inventory cost 20 30 000 600 000 20 25 000 500 000 100 000 o Therefore the company is using a variable costing system o On the External report we will show inventory goods at 100 000 because variable costing does not follow GAAP o III Exam Review Remember simple calculator Pencil Personal ID and remember your Student ID number 25 multiple choice questions Chapter 4 Absorption costing Job order costing o Calculate POHR based on estimates and compared with the actual then adjusted with the cost of goods sold o Can take the unit product cost times the units sold and compare that to the real force o KNOW MANUFACTURING OVERHEAD differences between selling admin costs o Be able to come up with cost for a job DL DM Applied Overhead o Compute net operating income using different methods Variable costing net income Chapter 6 activity based costing o Cost pools and the different levels be able to classify items as these levels o Different types of cost drivers 2 o Compute the different cost pools and then find the total cost of the cost pool which we can find the rate of activity for the cost pool and then can apply that to cost objects o Once you have the cost for the object be able to find the margin which is just the revenue of the object minus the cost o Selling and admin sometimes applied to product but NOT in variable