COST ACCOUNTING AND CONTROL
Merchandising Formula
Beginning Inventory
Add: Net Costs of Purchases
Purchases
Less: Purchases Discount
Purchase Ret. & Allow
Net Purchase
Add: Transportation In
Net Cost of Purchases
Cost of Goods Available for Sold
Less: Ending Inventory
Cost of Goods Sold
₱xxx
₱xxx
₱xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
₱xxx
Net Cost of Purchases= Purchase-Purchase Discount-Purchase Returns and Allowances+ Transportation
In
Beginning Inventory + Purchases - Ending Inventory= COGS
Squeeze- working back
Condense- shorten o pinaiksing version ng computation
Grind Question 1
Squidward Company has the following cost of information for the year-ended December 31, 2019:
Beginning Inventory
34560
Purchases
123900
Purchase Discount
?
Purchases Returns and Allowances
Transportation In
2100
Ending Inventory
55670
Costs of Sales
102890
2000
Require: Compute for the amount of purchase discount.
Beginning Inventory
Add: Net Costs of Purchases
Purchases
Less: Purchases Discount
Purchase Ret. & Allow
Net Purchase
Add: Transportation In
Net Cost of Purchases
Cost of Goods Available for Sold
Less: Ending Inventory
Cost of Goods Sold
Thus, purchase discount is ₱0.
₱34560
₱123900
₱0
2000
2000
121900
2100
124000
158560
55670
₱102890
Grind 2 Question
The complete accounting records of Squid ball Company were nowhere to be found due to Typhoon
Kikiam. The company’s manager gave you the following remaining information from his personal notes:
• Selling price of each unit of products is 140% of costs of goods sold
• Total sales as of the date before the typhoon is 504000.
• Based on physical inventory before the typhoon, there are still 867 units remaining on stock.
• Units sold so far was 24000 units
• The amount of beginning inventory for the period was 82275.
• So far, the company’s purchases were P290730.
Required: Compute the amount of inventory before the typhoon.
Key to Correction : There is one issue need to be resolved to answer this problem.
Issue I: What is the valuation of ending inventory (or any other inventory) in the accounting records of the
company? Is it the selling price or the cost?
Answer I: The valuation of inventory in the company’s book must be the COST (PUHUNAN) of the
inventory and NOT its selling price.
Answer: P13005
Cost of Goods Sold = 504000/140% = 360000
Per Unit COGS = 360000/24000 units sold = 15 pesos per unit
Ending Inventory = P15 * 867 units = P13005
Cash Prized Question
On February 18, 2020, a fire destroyed the merchandise inventory of CS Company. The following
information are available from the company’s accounting records: Costs of Goods Sold, P1260000;
Transportation In, 39600; Merchandise Inventory, December 31, 2019, 300000; Purchase Discount, 26400;
Purchase Returns and Allowances, 46200; and Purchases, P1320000.
In addition, the company is selling product at a mark-up of 20% of cost of goods sold per unit. Upon
inspection after the fire, the staff of the company found out undamaged inventories that can be sold for
58200.
Required: Compute the amount of lost merchandise.
Beginning Inventory
Add: Net Costs of Purchases
Purchases
₱1320000
Less: Purchases Discount
₱26400
Purchase Ret. & Allow
46200
72600
Net Purchase
1247400
Add: Transportation In
39600
Net Cost of Purchases
Cost of Goods Available for Sold
Less: Ending Inventory
Cost of Goods Sold
₱300000
1287000
1587000
327000
₱1260000
Ending Inventory= Cost of Goods Available for Sale- Costs of Goods Sold
= 1587000-1260000
= ₱327000
Undamaged Inventory price per unit= 58200-1.20= 48500
Amount of loss merchandise= Ending Inventory- Undamaged Inventory
= 327000-48500
= ₱278500
Manufacturing Formula
Raw Materials Inventory, beg.
Add: Purchases
Raw Materials Available for Use
Less: Raw Materials, end
Raw Materials Use
Direct Labor
Factory Overhead
Manufacturing cost
Add: Work-in-process Inventory, beg.
Cost of Goods Placed in Process
Less: Work-In-process, end.
Costs of Goods Manufactured
Add: Finished Goods Inventory, beg
Costs of Goods Available for Sale
Less: Finished Goods Inventory, end
Costs of Goods Sold
₱xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx (total nung this year finished product)
xxx (tira last production)
xxx
xxx
xxx
xxx
xxx
xxx
₱xxx
Manufacturing elements- kelangan to produce product
Direct Materials- materials that are very visible to the product, not difficult to locate with the actual
product, mga mahal, cause a major part on the actual product, forms large part on the cost of actual
product.
Direct Labor- kung sino ang mismong nagawa ng product sya ang mataas ang salary
Overhead/ Manufacturing overhed/ Factoring overheadIndirect Materials- part ng factory overhead- hindi obvious sa product, mura,
Indirect Labor- do not work directly on raw materials
EXAMPLE: Doll Manufacturing Company
December 31, 2020
--Yung natira last year yun ang beginning inventory by Jan or present year.
Raw Materials- hindi pa nagagamit
FROM THE BOOK: Manufacturing Costs
Direct Materials- also called the raw materials and has the significant part of the finished goods.
Direct Labor-employees who work directly with the raw materials in converting them to finished good
represent direct labor.
Manufacturing Overhead-all costs incurred in the factory that cannot be considered direct materials and
direct labor. (Sometimes called factory overhead, manufacturing expenses, factory burden) (categories:
indirect materials, indirect labor, other manufacturing overhead)
Indirect Materials- materials that are used in small amounts in the manufacturing process or that cannot
easily be traced to specific products.
Another type of indirect material, sometimes called factory supplies or operating supplies,
consist of the items that are used in the manufacturing process but do not become a part of the finished
goods. Ex: cleaning supplies for factory, lubricant oil for machinery.
Indirect Labor- wages of the personnel who do not work directly on raw materials. Ex: factory workers,
storeroom clerks, janitors, superintendent, maintenance crew and factory supervisors.
Other Manufacturing Overhead- includes such costs as payroll taxes on factory wages, rent, depreciation,
taxes, and insurance on factory buildings and machinery.
Other manufacturing overhead is growing part of the total cost production because of the increasing
use of labor-saving equipment such as computers and robots. The use of automated equipment results in
more costly maintenance, greater insurance and depreciation charges and increased utility costs.
Prime Costs= Direct materials+ Direct Labor (primary sources of costs for units in production)
Conversion Costs= Direct labor+ Factory Overhead (costs required to convert the raw materials into
finished products.)
Grind 3 Question
Raw Materials Inventory, beg
Add: Purchase
Raw Materials Available for sale
Less: Raw Materials, end
Raw Materials use
Direct Labor Payroll
Factory Overhead
Manufacturing cost
Add: Work-in-process Inventory, beg.
Costs of Goods Manufactured
Add: Finished Goods Inventory, beg
Costs of Goods Available for Sale
Less: Finished Goods Inventory, end
Costs of Goods Sold
Thus, COGS is ₱970000.
Kinds of Inventory in Manufacturing
₱0
450000
450000
(25000)
425000
200000
300000
925000
0
925000
45000
970000
0
₱970000
Manufacturing cost- tawag dun sa pinagsama samang cost
Work-in-Process- hindi natapos or unfinished product last year
Cost of Goods Placed in Process- Halaga ng panindang inilagay sa proseso this year, yung sinumulan ngayon
11200000 at 200000
Less: Work in process- natira last year na hindi tapos
Costs of Goods Manufactured- mga natapos na ngayon
Finished goods inventory- produkto na tapos na dati pa pero di pa nabebenta
FROM THE BOOK:
Raw Materials Inventory account- reflects the costs or raw materials and factory supplies that will be
used in manufacturing process. Once the direct materials are removed from the storeroom for use in the
manufacturing process, their costs are no longer part of the raw materials inventory. Instead, these costs are
then classified as part of work-in-process
Work-in-Process Inventory account- reflects the cost of raw materials, direct labor, and manufacturing
overhead of goods on which manufacturing has begun but has not completed at the end of the fiscal period.
Finished Goods Inventory account- reflects the costs of goods that have been completed and are ready
for sale. This account corresponds to the merchandising inventory account of merchandising business. Any
charges in Finished goods inventory account are reflected in the cost of goods sold section of the income
statement.
Grind 4 Question
**Hints: **
For factory overhead, we are using an estimated amount only, and not the actually overhead
incurred. (Rationale for this will be explained in future discussions)
Purchase returns and allowances refer to the amount returned to supplier because inventory is either
damaged, or not within the specifications of the buyer. It is treated as deduction to the total amount of
purchases.
Transportation In refers to the amount of shipping fee shouldered and paid by the buyer when
purchasing inventory. It is treated as addition to the total amount of purchased inventories.
Raw Materials Inventory, beg.
Add: Purchases
Raw Materials Available for Use
Less: Raw Materials, end
Raw Materials Use
Direct Labor
Factory Overhead (200000x70%)
₱67000
165000 (163,000-2000+4000)
232000
62000
170000
200000
140000
Manufacturing cost
Add: Work-in-process Inventory, beg.
Cost of Goods Placed in Process
Less: Work-In-process, end.
Costs of Goods Manufactured
510000
145000
655000
171000
₱484000
Note: Tingnan lang yung mismong hinahanap sa question, in this case ang hinahanap lang ay cost of
goods manufactured.
How much is the cost of goods transfer to work-in-process inventory? * Manufacturing cost*
How much is the cost of goods transfer to finished goods? *Costs of goods manufactured*
Grind 5 Question
The following information pertains to Fry Enterprises: Cost of goods manufactured, P450,000; Beginning
work-in-process inventory, 210,000; Ending work-in-process inventory, 180,000; Manufacturing
overhead, 150,000. What are the prime costs for the year?
Hint: Prime Costs: Direct Materials + Direct Labor
Prime Cost
Manufacturing Overhead
Manufacturing cost
Add: Work-in-process Inventory, beg.
Cost of Goods Placed in Process
Less: Work-In-process, end.
Costs of Goods Manufactured
₱270000
150000
420000
210000
630000
180000
450000
(Squeeze computation)
Prime Costs= Direct materials+ Direct Labor (primary sources of costs for units in production)
Conversion Costs= Direct labor+ Factory Overhead (costs required to convert the raw materials into
finished products.)
Grind 6 Question
Raw Materials Inventory, beg
Add: Purchase
Raw Materials Available for sale
Less: Raw Materials, end
Raw Materials use
Direct Labor
Factory Overhead
Manufacturing cost
₱27000
36000
63000
21000
42000
60000
84000
186000
Add: Work-in-process Inventory, beg.
Costs of Goods Placed in Process
48000
₱234000
Answer: Costs of Goods Placed in Process
₱234000
Grind 7 Question
Raw Materials Inventory, beg.
Add: Purchases
Raw Materials Available for Sale
Less: Raw Materials Inventory, end
Raw Materials Use
Direct Labor
Factory Overhead
Manufacturing Cost
Add: Work-in-process Inventory, beg.
Cost of Goods Placed in Process
Less: Work-In-process, end.
Costs of Goods Manufactured
Add: Finished Goods Inventory, beg
Costs of Goods Available for Sale
Less: Finished Goods Inventory, end
Costs of Goods Sold
₱0
176900
176900
45000
131900
54000 (1000x54)
13500 (54000/4)
199400
12800
212200
0
212200
65000
277200
0
₱277200 (answer)
Note: Increased in inventory= Ending inventory ; Decreased in inventory= Beginning Inventory
Actual Factory Overhead – ibang part (gamit kapag walang estimated/applied FOH) deny!
Applied Factory Overhead- estimated amount of overhead (use if available)
Example: FOH is applied at 80% of direct labor. Actual FOH is ₱90000. Direct labor is ₱100000
Answer: FOH= 100000x .80= ₱80,000
*Kung anong available na given syang gamitin.
Grind 8 Question
When deciding whether to include an expense to Manufacturing Costs, be sure such expense is related to production.
Otherwise, it must not be part of the Manufacturing Costs.
The amount of factory overhead must be an estimated amount only, and not the actual overhead incurred.
Direct Materials
Direct Labor
Factory Overhead
Manufacturing Costs
126000
160,000
80,000 (160000x.50)
₱366000 (B.)
Note: Focus sa hinihingi ng question.
*Raw Materials Used pertains to direct material only*
Manufacturing Overhead/Cost= Direct Material+ Direct Labor+ Factory Overhead
Grind 9 Question
Raw Materials Inventory, May 1
Add: Purchases
Raw Materials Available for Sale
Less: Raw Materials Inventory, May 31
Raw Materials Used
₱5000
38000
43000
8000
35000
Note: Squeeze computation
COST ACCOUNTING CYCLE
Perez Company has he following cost information for 2019:
Raw Materials Inventory, beg.
Purchases of Raw Materials
Raw materials Inventory, end.
Factory Payroll
Other Manufacturing Overhead
Work-in-Process, beg.
Work-in-Process, end.
Finished Goods , beg.
Finished Goods, end.
30000
80000
20000
100000
8000
50000
30000
40000
15000
20% of the raw materials used is indirect. Factory payroll amounting ₱10000 is attributable to indirect
material. Factory overhead is estimated to be 40% of direct labor.
Raw Materials Inventory, beg.
Add: Purchases
Raw Materials Available for Use
Less: Raw Materials, end
Raw Materials Use
Less: Indirect Material
Direct Materials
Direct Labor
Factory Overhead
Manufacturing cost
Add: Work-in-process Inventory, beg.
Cost of Goods Placed in Process
Less: Work-In-process, end.
Costs of Goods Manufactured
Add: Finished Goods Inventory, beg
Costs of Goods Available for Sale
Less: Finished Goods Inventory, end
Costs of Goods Sold
₱30000
80000
110000
20000
90000 x .80= 72000
18000
72000
90000 (factory payroll- 100000-10000)
36,000 (direct labor x 40%)
198000
50000
248000
30000
218000
40000
258000
15000
₱243000
Cost Accounting Cycle
Beginning Inventory- left side debit
Ending Inventory- right side credit
Inventory- asset
Cost of Factory Payroll- in nature expense
Factory overhead control- in nature expense
Indirect – FOH Direct – Manufacturing- Work In
Kaliwa- pumasok yung amount from the account
Kanan- lumabas yung amount from the account
Raw Materials Inventory Work-in-process Inv.
30000
80000
110000
20000
90000
110000
Factory Payroll
50000 218000
72000
90000
36000
248000 (218000)
30000
Finished Goods Inv.
40000 243000
218000
258000 243000
Cost of Goods Sold
243000
1000
244000
15000
100000 (100000)
Factory Overhead Control
18000 (36000)
10000
8000
37000
36000
1000
1000
Estimate (kulang)- under applied overhead meaning
bababa o bumaba ang COGS if applied estimate
(Idadagdag sa COGS ang kulang).
Actual (mataas) – over applied overhead meaning
tumaas ang COGS if actual. (Ibabawas sa COGS).
Journal entries
Same rules (asset/expense) Increase sa DEBIT, Decrease sa CREDIT (Basta know their normal balance!)
Asset: Raw Materials,
ON ACCOUNT:
1.
2.
3.
4.
5.
6.
7.
8.
Purchased raw materials 80,000
Issued and used raw materials amounting 90,000. Twenty percent of materials used in indirect.
Paid salaries to factory workers amounting 100,000. Indirect labor amounted to 10,000
Incurred other manufacturing overhead worth 9,000
Applied manufacturing overhead at 40% of direct labor.
Completed products worth 218,000 and transferred it to finished goods.
Sold products for a selling price of 400,000 with cost amounting 243,000
Adjust costs of goods sold for the amount of under/over applied overhead.
1.Raw Materials
80,000
Accounts Payable
80,000
2.Work-In Process
72,000
Factory Overhead
18,000
Raw Materials Inventory Control
3. Factory Payroll
Cash
Work-In Process
Factory Overhead Control
Factory Payroll
90,000
100,000
100,000
90,000
10,000
100,000
4. Other manufacturing overhead
9,000
Accounts payable
9,000
5. (40% direct labor)
Work-In Process
36,000
Factory Overhead Control
36,000
6. Finished Goods Inventory
Work-In Process
218,000
7. Accounts Receivable
Sales
400,000
218,000
400,000
Costs of Goods Sold
243,000
Finished Goods Inventory
243,000
8.Costs of Goods Sold
1,000
Factory Overhead Control
1,000
*Underapplied= debit balance, malaki yung actual
*Overapplied= credit balance, maliit yung actual
How to Treat underapplied or overapplied
*Material- kapag malaki ang amount na nakakaapekto sa desisyon.
* Immaterial- kapag maliit ang amount na hindi nakakaapekto sa decision making.
GENERAL RULE- adjust, treat as immaterial (kapag walang statement na material/immaterial sa
problem)
EXAMPLE: Material
Material- allocated the under/ over applied overhead to the Work-In Process Inventory, Finished Goods
Inventory, end, and Costs of Goods Sold.
LAW- prorated, proration, prorate- hahati-hatiin
Work-In Process Inventory
Finished Goods Inventory
Costs of Goods Sold
Total
30,000
15,000
243,000
288,000
Work-In Process Inventory
Finished Goods Inventory
Costs of Goods Sold
Factory Overhead Control
104.17
52.08
843.75
1,000
(30,000/288,000) x 1000
(15,000/288,000) x 1000
(243,000/288000) x 1000
104.17
52.08
843.75
1,000
The following transactions refer to Gatchalain Manufacturers. The entity is using two separate account for
over/ underapplied overhead.
a.Purchased on account raw materials amounting 180, 000
Raw Materials
180,000
Accounts Payable
180,000
b. The factory payroll was recorded direct labor amounted to 60,000 while indirect labor was amounted to
20,000. Employee payroll deductions were recorded as follows:
Withholding taxes
SSS Premiums
Phil health Contribution
Pag-Ibig Fund Contribution
11,200
2,400
375
1620
Entry:
Factory Payroll
80,000
Payable to BIR
11,200
Payable to SSS
2,400
Payable to Phil Health
375
Payable to Pag-IBIG
1620
Payable to employees
64405
(paghahati ng factory payroll sa direct and indirect)
Work-In Process Inventory
Factory Overhead Control
Factory Payroll
60,000
20,000
direct
indirect
80,000
Paid employees’ salaries
Payable to employees
Cash
Paid
64,405
64,405
Payable to BIR
11,200
Payable to SSS
2,400
Payable to Phil Health 375
Payable to Pag-IBIG 1620
Cash
15,595
c. Issued and used raw materials worth 130,000. Out of this amount, 120000 refers to direct material
Work-In Process inventory
120,000
Factory Overhead Control
10,000
Raw Materials Inventory
130,000
d. Defective raw materials amounting 2000 were returned to vendor/supplier (normal perpetual)
Accounts Payable
2000
Raw Materials Inventory
2000
e. Settled accounts payable related to purchase of raw materials.
Accounts Payable
Cash
178,000
178,000
f. Incurred factory expenses amounting 9000
Factory Overhead Control
Accounts Payable
9,000
9,000
g. Factory overhead was charge to production at 120% of direct labor cost.
Work-In Process Inventory
72,000
Factory Overhead Applied
72,000
separate
h. Goods completed with a total cost of 175,000 were transferred to finished goods.
Finished Goods Inventory
Work-In Process Inventory
175,000
175,000
I .Sold the finished goods inventory costing 140,000 for 210,000 on account.
Accounts Receivable
Sales
210,000
210,000
Costs of Goods Sold
140,000
Finished Goods Inventory
140,000
j. Any over or underapplied overhead will be treated as immaterial amount.
Factory Overhead Applied
72,000
Factory Overhead control
Overapplied Factory Overhead
Overapplied Factory Overhead
Costs of Goods Sold
39,000
33,000
33,000
33,000
*immaterial= adjusted sa cogs
Overapplied= ibabawas sa cogs
Underapplied= idadagdag sa cogs
Factory Overhead Control
20,000
10,000
9,000
39,000
Factory Overhead Applied
72,000
72,000
Overapplied factory Overhead
33,000
33,000
COST CLASSIFICATION
-When we are classifying it can be under different categories.
-When can classify cost sa iba’t ibang paraan.
-We have six categories of cost.
1. Cost classified as to relation in a product- mga gastos na related sa product
1.1 Product Cost/ Manufacturing Costs/ Inventoriable Costs- mga gastos natin na mahalaga
para mabuo yung product. Yung ginagamit natin sa pagbuo ng product.
1.1.1 Direct Material
1.1.2 Direct Labor
1.1.3 Manufacturing overhead
1.2 Period Costs/ Nonmanufacturing costs/ non-inventoriable costs- mga gastos na hindi gamit/
related sa pagbuo ng product. (Operating expenses)
1.2.1 Selling expenses- (advertising expense) (sweldo ng salesman, depreciation(pagbaba
ng value ng asset) depreciation ng equipment, rent expense)
1.2.2 General and administrative Expenses (gastos sa pagmamanage ng business) sweldo
ng president, sweldo ng accountant, sweldo ng guard.
2. Costs classified as to variability- variable (nagbabago)
2.1 Fixed Costs- gastos na hindi mababago kahit hindi ka gumawa ng product (rent of
commercial space) salary ng guard kahit pinasara ang factory tas nagbabantay pa sya, it remains fixed
regardless wala kang nagwa sa production,
2.2. Variable Costs- tumataas yung price kapag dumadami yung gusto nating iproduce,
nagbabago depende sa dami ng pinuproduce mo, kapag wala kang pinroduce wala kang variable costs,
kapag marami kang pinroduce malaki ang variable cost
2.3 Semi Variable Costs/ Semi-fixed/ Mixed Costs- pinaghalo
Total Fixed Costs
Units Produced
Fixed Costs Per Unit
100000
1
100000 (100000/1)
100000
10
10000 (100000/10)
100000
100
1000 (100000/100)
100000
1000
100(100000/1000)
100000
10000
10 (100000/10000)
*kapag per unit basis, ang fixed costs ay hindi fixed, sa total fixed costs fixed talaga, pero kapag per unit
nababago. Ang tawag dun ay variable. Habang tumataas ang production bumababa ang fixed cost per
unit*
Total Variable Costs
Units Produced
Variable Costs per unit
400000
10000
40
40000
1000
40
4000
100
40
400
10
40
*In total variable cost is variable it varies, according to production. When total production is decreasing
total variable cost is decreasing.* Fixed ang variable cost per unit.
Ang total fixed cost ay fixed, and fixed costs per unit is variable. Ang total variable costs ay variable, ang
variable per unit ay fixed.
Example ng mixed cost- kuryente, bill ng tubig,
Separation of Mixed Costs
1. High-low method
2. Least Square Method
General equation:
Y= a +bx
Whereas:
Y= mixed cost
a= total fixed cost
b= variable cost per unit
x= cost drive (nagpapagalaw ng cost) consumption
Linato Company has the following information regarding its electric expenses for the past 5 months:
Month
Consumption (KwH)
Total Electric Costs
January
120
10982
February
125
11433
March
143
14654
April
111
10098
May
109
9876
Variable Cost Per Unit (hahanapin muna yung highest level of activity at lower level of activity)
Variable Cost Per Unit= (Y₂ - Y₁)/ (X₂ - X₁)
High and Low Method is only true sa high and low points (hindi tumatama sa ibang points)
Problem 1:
Linatoc Company wants to segregate its electric expenses, which is determined as mixed cost to variable
costs and fixed costs. The following information for the previous 5 months are given to you:
Month
June
July
August
September
October
Consumption (x)
24
32
29
35
40
Electric Expense (y)
145
178
169
190
220
Y= a +bx
Y= expense
A= fixed cost
B= variable cost
x=consumption
Variable cost per unit= (Y₂ - Y₁)/ (X₂ - X₁)
= 220-145/ 40-24
= 75/ 16
B = ₱4.6875
Fixed cost: y= a + bx
220= a + 4.6875 (40)
220= a + 187.50
220- 187.50= a
32.50= a
* Kapag fixed cost ang tinatanong ideretso na agad huwag na mag-round off sa variable cost.
EXAMPLE: Neither Lowest nor Highest points
Y= a+ bx
169= 32.50+ 4.6875 (29)
169=32.50+ 135.9375
169= 168.4375 (not equal)
Using the high low method hindi sya tumatama sa mga points na hindi highest/ lowest
High low is only true in the highest/ lowest point
It is false if we used it on points other than the highest and lowest points. Hindi laging tama.
Using the high low method, if consumption on Nov. is 47 KwH, how much is the estimated electric
expense?
Y= a + bx
=32.50+ 4.6875 (47)
= 32.50 + 220.3125
= 252.8125
= ₱252.81
LEAST SQUARE METHOD
Compute the variable cost per unit and total fixed cost that best approximate for all the data given:
 Pinakalamalapit na approximation
Month
Consumption
Electric Expense
xy
x²
June
24
145
3480
576
July
August
32
29
178
169
5696
4901
1024
841
September
October
35
40
190
220
6650
8800
1225
1600
Required: Estimate the amount of variable cost per unit and total fixed costs using least square method.
Equations:
Σy= na + bΣx
Σxy= Σxa + bΣx²
N= number of data
a= total fixed cost
b= variable cost per unit
y= electric expense (cost)
x= consumption (activity)
*Statistics
Σy= na +bΣx
Σxy= Σxa + bΣx²
(902= 5a + 160b) *32
29527= 160a + 5266b
28864= 160a + 5120b
-29527= 160a + 5266b
-663=
-146b
-146=
-146
4.5410= b
Σy= na+ bΣx
902= 5a +160 (4.54110)
902= 5a + 726.576
902- 725.576 = 5a
175.424 = 5a
5
5
35.0848= a – the best/ nearest estimate fixed cost is 35.0848
Follow up: Compute the estimated electric expense when consumption for Nov is 37 KWH.
Y= a + bx
= 35.0848 + 4.54110 (37)
= 35.0848 + 168.0207
= ₱ 203.1055
Problem 3:
Mandanas Company has the ff information regarding its mixed cost.
Month
Units Produced
Mixed Cost
January
1098
109890
February
March
April
May
June
July
August
September
October
November
1187
980
967
1165
1001
1068
888
201
1111
1132
114567
103456
101999
113980
107009
108888
99000
40000
112987
113998
Too low- outlier
Concept:
Outliers- those are numbers that are extremes/ extremely high/ low
High-low method- the purpose is we do not include outliers on the computations became it will distort the
computations kasi ito too low / too high.
Variable cost = (Y₂ - Y₁)/ (X₂ - X₁)
= 114567- 99000/ 1187 – 888
= 15567/ 299
b=52.06 per unit
Fixed cost= y= a + bx
114567= a + 52.06 (1187)
114567= a + 61795.22
114567 – 61795.22 = a
55271.78= a
Kung ano ang highest at lowest sa x yung katapat ang cost (electric expense)
Independent ang x at dependent ang y
3.Cost Classified as to relation of manufacturing departments
3.1 Direct Departmental Cost- directly attributable to the specific department (sewing
department- depreciation of sewing machine) (packaging department- depreciation of packaging
department) specifically traceable to a certain department
3.2 Indirect Departmental Cost- allocable, ( example: salary ng factory guard ay hahatiin sa
tatlong department) it is not specifically traceable to each department, kaya iaallocate (salary ng janitor ay
hindi directly traceable don sa isang department lang, if lahat ng department ay nililinisan nya—square feet)
4.Cost classified to their nature as common or joint cost
4.1 Common Cost – this are also allocable cost, there are multiple processes, business, or
accounting periods kung saan sakop yun ng cost na yun (depreciation ng building—may ilang business sa
loob at paghahatian nila yun). Normally sa FOH, cost to na inaallocate dahil ginagamit to ng dalawang
proseso, dalawang period o higit pa sa dalawa) Pedeng operating expenses din.
4.2 Joint Cost- yung gastos na na-incur kapag pinroseso natin yung isang bagay tapos magreresult
sya sa dalawang produkto (hal: balinghoy—minukmok o nilupak at budin – same ang process nila.
Allocation rin. Normally but not always, sa direct material and labor sya pede rin sa FOH. Ang concept
may isang prosesong dadaanan yung materials para makabuo ng dalawa o higit pang produkto.
5.Cost classified as to relation to an accounting period
5.1 Capital Expenditure – gastos natin sa mga long term assets (halimbawa: bibili tayo ng
machineries, magsasagawa ng long term projects or mga investment for long term projects)
5.2 Revenue Expenditure – gastos natin sa normal operating business (mga pang-araw-araw na
gastos) (gastos sa kuryente, sahod)
6. Cost for planning control and analytical processes
6.1 Standard Cost- ginagamit kapag nageestimate tayo ng amount kagaya ng FOH, normally of a
certain rate of direct labor, budgeted cost, (mahalaga dahil nacocompare ang amount ng (budgeted amount)
estimated at actual at kapag nakita nila na magkaiba yung amount nag-iimbestiga ang mga management
accountant. All the variances or pagkakain whether mas mababa or mataas sa standard cost ay
iimbestigahan ng accountant, from that investigation makakaarive ka sa decision, na kaya pala mababa ang
actual amount ay substandard materials pala ang binibili, nag-aanalyze tayo, nagpaplano at make decisions
6.2 Opportunity Cost- cost of the second-best alternative, yung unang hindi mo pinili, rank 2 lang,
forgone value
6.3 Differential Cost- cost na magkaiba sa dalawang alternative, cost that is different under two
alternatives (sa pagbabakasyon: airplane ticket, magkaiba ang pamasahe ng paboracay at paromblon)
6.4 Relevant Cost- mahalagang cost na mahalaga sa decision making (criteria: it must be
differential (magkaiba sa dalawang alternative and it is not sunk- past cost ang meaning ng sunk, cost ng
nakaraan) (airplane ticket is a relevant cost) para maging relevant dapat under sya ng differential cost and
it must be future cost, or gagastusin mo sa hinaharap
6.5 Out of pocket cost- hinugot sa sariling bulsa, binayaran ng sariling bayad
6.6 Sunk Cost- past cost, cost na na-incur at naconsume dati or nakaraan na, hindi na mahalaga
yun
6.7 Controllable cost- nacocontrol mo or nung business (consumption of electricity kasi pede ka
magtipid) pede bawasan or dagdagan depende sa atin
Non controllable cost- depreciation ng building, pumirma ng kontrata for rent at hindi pede
baguhin, magamit or hindi babayaran parin natin.
CVP ANALYSIS
-we are referring to expenses kahit hindi siya product cost. Siya yung iclaclassify natin kung siya ay variable
or fixed
Nagamit ng Contribution Margin Approach Income Statement
Sales
Less: Variable Cost
Contribution Margin
Less: Fixed Cost
Net Profit
xxx
xxx
xxx
xxx
xxx
Relevant Range – magiging true lang ang information sa CVP analysis pag nasa relevant range.
The information are in relevant range if:
1.
Price remains constant
2.
Variable cost per unit is constant
3.
Total fixed cost remains fixed
4.
In case of multiple-products producing firm, sales mix is constant – example a company is
producing a 30% of product A, 20% of product B, 50% of product C. dapat ganan ang proportion
ng mga iproproduce forever, di dapat nababago.
If we are using CVP Analysis, we are assuming that all products produced are sold within the period.
EXAMPLE PROBLEM
ABC Company is producing calculator, Each calculator is sold at P10. Variable cost incurred per unit of
calculator amounted to P6. Total fixed cost amounted to P100.
(TR)Total Revenue = Quantity Sold * Price Per Unit
(TVC)Total Variable Cost = Quantity Sold or produced * Variable Cost Per unit
(TC)Total Cost = Total Variable Cost + Total Fixed Cost
Quantity
TR
TVC
TFC
TC
5
50
30
100
130
10
100
60
100
160
12
120
72
100
172
15
150
90
100
190
25
250
150
100
250
TOTAL COST = TOTAL REVENUE when they intersect. In some point.
When total cost and total revenue is total, they will intersect when they are graph. The intersection called
BREAK EVEN POINT.
At BREAK-EVEN POINT is total cost = total revenue. There is no profit nor loss.
- It is important in planning. Malulugi tayo pag di natin nalampasan ang break even
point.
In break-even point in unit: kailangan mahanap yung unit produced na walang tutubuin ang busines
TR=TC or QSp = QVC+FC
Where
Q =Quantity
Sp = Selling Price
VC= Variable cost per unit
FC= Fixed Cost
TR=TC
QSp=QVC+FC
QSp-QVC=FC
Q(Sp-VC)=
FC
(Sp-VC). (Sp-VC)
Break Even point in units (Q)= FC / (Sp-VC)
= 100 / (10-6) galling sa example problem sa taas
= 100 / 4 ( yung 4 ay yung contribution margin per unit)
= 25 units
Or
TR = TC
10Q = 6Q + 100
10Q – 6Q = 100
4Q = 100
Q = 25
Contribution margin per unit = Sales price per unit – Variable cost per unit
Break Even point in peso = Break even point in unit * SP
25 * 10 = 250 (galling sa problem kanina)
Or Break Even point in Peso = FC / Contribution Margin Ratio
CM Ratio = CM per unit / SP per unit = 4/10 = 40%
CM Ratio = Total CM / Total Sales
CM Ratio = (Sales – variable expenses) / sales
Break Even point in Peso = FC / Contribution Margin Ratio
=100 / 40%
= 250 pesos
EXAMPLE PROBLEM
ABC Company has P900,000 fixed cost every month. Its product is selling at P200 per unit. Each product
incurs P120 variable costs. Compute the break even point in units and in peso.
Break even point in unit = fixed cost / (selling price per unit – variable cost per unit )
= 900000 / ( 200 – 120 )
= 900000 / 80
= 11250 units
Break Even point in peso = break even point in unit * selling price
= 11250 * 200
= P2,250,000
Or Break Even point in peso = Fixed cost / contribution margin ratio
= 900000/ (80/200)
= 900000/ 0.40
= P2,250,000
Total Variable cost = 11250 x 120 = 1135000
Contribution Margin Approach Income Statement (in break even point)
Sales
Less: Total Variable Cost
Contribution Margin
Less: Fixed Cost
Profit (Loss)
11250 unit
2250000
1135000
900000
900000
0
11251 units
2250200
1350120
900080
900000
80
11252 units
2250400
1350240
900160
900000
160
11253 units
240
If we are in Break Even Point, contribution margin and fixed cost is equal.
-The contribution margin is used to cover the fixed cost
-There will be profit if the contribution margin is greater than the fixed cost
-There will be loss if the contribution margin is less than the fixed cost
-If you produce 1 unit additional above the break even point, the profit will increase by the amount of
contribution margin per unit
-The increase in contribution margin is also the increase in profit
EXAMPLE PROBLEM
B Company targets to earn profit amounting P100000. Selling price per unit is P80 and variable cost per
unit is P60. Compute the number of units that must be produced to attain its profit objective given that
fixed cost is P500000.
TR – TC = Revenue
TR – TC = 100000
80Q – (60Q + 500000) = 100000
80Q – 60Q – 500000 = 100000
20Q = 100000 + 500000
20Q/20 = 600000 / 20
Q = 30000 units
or
Q= FC + Desired Profit / (SP-VC)
= 500000 + 100000 / (80-60)
= 600000 / 20
= 30000 units
EXAMPLE PROBLEM
B Company targets to earn profit amounting P100000. Selling price per unit is P80 and variable cost per
unit is P60. Compute the amount of sales that must be earned to achieve the target if fixed cost is
P500000.
Target Sales = FC + Desired Profit / Cm Ratio
= 500000 + 100000 / ((80-60)/80)
=500000 + 100000 / (20/80)
=600000 / 0.25
= P2400000
EXAMPLE PROBLEM
C Company is selling Product A at P250 per unit. Variable cost per unit amounted to P200. Fixed costs
amounted to P380000. If the management wants to earn 10% profit based on sales, how many units must
be produced and sold?
Note : TR is sales
TR – TC = profit
250Q – (200Q+380000) = 10%(250Q)
250Q – 200Q - 380000 = 25Q
250Q – 200Q – 25Q = 380000
25Q = 380000
25Q/25 =380000/25
Q = 15200
Checking by Contribution margin approach income statement
Sales ( 15200*250)
Less: VC (15200 * 200)
CM
Less: FC
Profit
3800000
3040000
760000
380000
380000
We can also used this way to compute the required in the problem
Q = FC / [SP(100%-10%)-VC]
= 380000 / 250 (90%) – 200
= 380000 / (225-200)
= 380000 / 25
= 15200 units
WHEN MULTI-PRODUCT FIRM
XYZ Company is producing three products. The following are the selling price and variable cost
information regarding each product:
Product A
Product B
Product C
Selling Price
200
250
100
Variable Cost Per unit
150
200
50
Note - Sales Mix – ilang percent nung total na pinproduce and product a, b, c
the company is producing 20% of product A, 30% of Product B and 50% of product C. Fixed cost
amounted to P1500000. How many units of each product must be produced to break-even?
SOLUTION
- una, Get the Contribution margin(CM) per unit of each product ( selling price per unit – variable costs
per unit)
PRODUCT A
PRODUCT B
PRODUCT C
Weighted Average CM
CM Per unit
50
50
50
x
Sales Mix
20%
30%
50%
BEP in units (for all products) = fixed costs / Weighted average cm
=1500000/ 50
= 30000
Final answer:
Product A = 30000 * 20% = 6000 units
Product B = 30000 * 30% = 9000 units
Product C = 30000 * 50% = 15000 units
Those are the units need to produced in each product to break even.
Checking through Contribution Approach Income Statement
Sales:
A (6000*200)
B (9000*250)
C (15000*100)
Less: VC
A (6000*150)
B (9000*200)
C (15000*50)
Contribution Margin
Less: Fixed Cost
Profit
1,200,000
2,250,000
1,500,000
900,000
1,800,000
750,000
4,950,000
3,450,000
1,500,000
1,500,000
0
This proved that those units produced will result to break even.
= Weighted CM
10
15
25
50
BREAK EVEN POINT is Total Cost = Total Revenue ; no profit nor loss
BEP in units = fixed cost / (selling price per unit – variable cost per unit)
BEP in peso = fixed cost / contribution margin ratio
Or BEP in units * Selling price per unit
Contribution Margin = Selling Price – Total Variable Cost
Contribution Margin Per Unit = Selling Price Per unit – variable cost per unit
Contribution Margin ratio = (Selling Price Per unit – Variable Cost Per unit) / Selling price per unit
Or Contribution Margin per unit / selling price per unit
Or Contribution Margin/Sales
Or (Sales – Variable Expenses) / sales
Total Revenue = Total Expenses or Total Cost
(SP*Quantity) = (VC per unit * Qty) + Fixed Cost
Desired sales in unit or target sales = FC + Desired Profit / (SP-VC)
Total Revenue – Total Cost = Profit
PROBLEM 1
An entity is selling balut. Variable cost per unit is P9 and selling price per unit is P15. Fixed cost
amounted to P10000. How many balut must be sold in order to break even? How much sales are needed
to yield zero profit?
BEP in unit = fixed cost / (selling price per unit – variable cost per unit)
= 10000 / ( 15-9)
= 10000/ 6
= 1667 units
BEP in peso = fixed cost / contribution margin ratio
= 10000 / 6/15
= 10000/ 0.4
= P25000
or
TR = TC
15Q = 9Q + 10000
15Q-9Q = 10000
6Q = 10000
Q = 1667
PROBLEM 2
A product is being sold at P70. The entity incurred fixed costs amounting P60000. If the entity earns
nothing after selling 3000 units. How much is the variable cost per unit?
TR = TC
70(3000) = 3000VC + 60000
210000 = 3000VC + 60000
210000 - 60000 = 3000VC
150000 = 3000VC
150000/3000 = 3000vc/3000
VC per unit = 50
Or BEP in unit = fixed cost / (selling price per unit – variable cost per unit)
3000 = 60000 / (70-VC)
210000-3000VC = 60000
-3000VC = 60000-210000
-3000VC = -150000
VC = 50 per unit
PROBLEM 3
An entity earned P60000 after selling 3000 units of Product A. At break even point the entity sold 10
units. Compute the amount of fixed costs
Using high low method. ( there are problems that can used high low method)
Variable cost per unit = 60000 – 0 / 3000 – 10
= 60000 / 2990
b= 21.81818
Y = a + bx
PROBLEM 4
An entity is targeting a net profit of P12000. Contribution margin ratio is 60%. Fixed costs amounted to
P300000. Variable cost per unit is P10. How many units must be produced to meet the target profit?
Target sales = FC + Desired Profit / CM ratio
= 300000 + 12000 / 0.6
= 520000
TR – TC = P
520000 – 300000 – 10Q = 12000
220000 – 10Q = 12000
220000 – 12000 = 10Q
208000 = 10Q
20800 per unit = Q
Or
Selling price per unit
100%
10 / 40% =
25 pesos
Less: variable Cost per unit
40% - Variable Cost Ratio
Contribution margin per unit
60%
Target sales per unit = FC + Desired Profit / CM per unit
= 300000 + 12000 / 15
= 20800
10 pesos
15 pesos
PROBLEM 4
An entity wants to earn a net profit equal to 10% of sales. If selling price is P100, variable cost per unit is
P75, and fixed cost is P100000, how many units must be sold?
TR – TC = Profit
100Q – (75Q + 100000) = 10% (100Q)
100Q – 75Q – 100000 = 10Q
25Q-10Q = 100000
15Q=100000
15Q/15 = 100000/15
Q= 6666.67 units
Checking:
Sales
Less: Variable Cost
Contribution Margin
Less: Fixed Cost
Profit
666667
500000.25
166666.75
100000
66666.75
66666.75 / 666667 = 0.10 or 10%
So its correct
GROSS MARGIN = Net sales - COGS