# Acc 2302 Final Exam Note Sheet

Acc 2302 Fall 2019 Final Exam Note Sheet
Basic Concepts
Product Cost = DM + DL + VOH + FOH Costs = All Manufacturing Costs
Period Costs = Selling and Administrative Costs = Non-Manufacturing Costs
Product Cost is attached to inventory and expensed only when product sold as COGS.
Period Cost is not attached to inventory and is expensed as incurred i.e. in the same period that the cost is incurred.
The elements of product cost flow through WIP and Finished Goods Inventory accounts.
Beginning DM Inventory Cost + Cost of DM Purchases – Cost of DM Used in Production = Ending DM Inventory Cost
Beginning WIP Cost + Cost of DM Used + Cost of DL Used + OH Cost – Cost of Goods Made = Ending WIP Cost
Beginning FG Cost + Cost of Goods Made – COGS = Ending FG Cost
High Low Method
Variable cost component or rate = Difference in total costs / Difference in activity of cost driver
Fixed cost = Total cost – Variable costs (may use either High or Low activity point of cost driver)
Cost Volume Profit Analysis
Unit CM = Selling Price – Unit Variable Cost
Breakeven Sales Volume = Fixed Costs / Unit CM
Sales Volume to attain Targeted Profit = [Fixed Costs + Targeted Profit] / Unit CM
Dollar Breakeven Sales Revenue = Breakeven Sales Volume times Selling Price = Fixed Costs / CM Ratio
CM Ratio = Unit CM / Selling Price
Operating Leverage = Contribution Margin / Operating Income
Margin of Safety Units = Current or Expected Sales Volume – Breakeven Sales Volume
For a multiple product scenario, the first step is constructing a representative single product to come up with selling price, unit
variable cost and unit CM for the representative product using the sales mix provided.
Job Order Costing
Under Normal Costing, it is Applied OH, not Actual OH that enters WIP.
Beg WIP Cost + Actual Cost of DM Used + Actual Cost of DL Used + Applied OH – Cost of Completed Jobs = End WIP Cost
Beginning FG Cost + Cost of Completed Jobs – Unadjusted COGS = Ending FG Cost
Applied OH = Predetermined OH Rate times Actual Activity of Cost Driver
Predetermined OH Rate = Budgeted OH Cost / Budgeted Activity of Cost Driver
Actual OH Cost &gt; Applied OH Cost means OH was underapplied by the difference between Actual OH Cost and Applied OH Cost.
The opposite scenario is overapplied OH with opposite adjustment to unadjusted COGS.
Process Costing (Only WA method was covered)
WA EUP = EUP in Ending Inventory + Units Completed or Transferred Out
EUP in Ending Inventory = Units in Ending Inventory times % Completion of Ending Inventory Units
WA Cost per EUP = [Cost of Beginning Inventory + Current Period Costs] / WA EUP
Cost of Ending Inventory = WA Cost per EUP times EUP in Ending Inventory
Cost of Goods Manufactured or Transferred Out = WA Cost per EUP times Units Completed or Transferred Out
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Absorption Costing
All manufacturing costs, including fixed manufacturing costs, are included in product cost.
FOH is another name for fixed manufacturing costs.
Unit product cost = All manufacturing costs incurred / Total Units Produced
Unit product cost is also = [DM Cost + DL Cost + VOH + FOH]/Total Units Produced
COGS = Unit product cost times Units sold
So when units sold &lt; Units produced, a portion of the FOH incurred does not enter COGS in the same period, and instead remains
in ending inventory.
Gross Margin = Sales Revenue – COGS
Operating Income = Gross Margin – Period Costs (both fixed and variable)
Variable Costing
Fixed Manufacturing Costs are not included in product cost and instead treated as period costs.
Unit Variable product cost = [All manufacturing costs incurred – FOH] / Total Units Produced
Unit Variable product cost is also = [DM Cost + DL Cost + VOH]/Total Units Produced
Variable COGS = Unit Variable product cost times Units sold
CM = Sales Revenue – Variable COGS – Variable Selling and Admin Costs
Operating Income = CM – Fixed Costs (both manufacturing and non-manufacturing)
So entire FOH incurred is always expensed in the same period.
Profit Planning and Operational Budgeting
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Use Sales Budget and desired ending inventory of finished product to come up with Production Budget.
Use Production Budget, quantity of RM needed to make one unit of finished product, and desired inventory of RM to
come up with RM Purchase Budget.
Use Sales Budget, percentage of cash sales, percentage of credit sales and collection policy or experience with credit
sales to come up with Cash Receipts Budget.
Use RM Purchase Budget, percentage of cash purchases, percentage of credit purchases and payment policy on credit
purchases to come up with Cash Payments or Disbursements Budget.
Variance Analysis
Flexible Budget Cost for Actual Output = Std Cost Per Unit of Output times Actual Output
Variance = Actual Cost vs Flexible Budget Cost for Actual Output
DM Price Variance = |AP – SP| times AQ
DM Usage Variance = |AQ – SQ for Actual Output| times SP
DL Rate Variance = |AR – SR| times AH
DL Efficiency Variance = |AH – SH for Actual Output| times SR
DL Rate Variance = |AR – SR| times AQ of Cost Driver
DL Efficiency Variance = |AQ of Cost Driver – SQ of Cost Driver for Actual Output| times SR
FOH Spending Variance = Actual Cost vs Budgeted Cost
FOH Volume Variance = Applied FOH vs Budgeted Cost
Performance Evaluation
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Residual Income = Operating Income – [Cost of Capital times Average Assets]
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