ACCT 2302

Fundamentals of Accounting II

Spring 2011

Lecture 8

Professor Jeff Yu

Expected profit (NOI) may change due to: a change in fixed expenses a change in CM per unit (=price - VC/unit) a change in sales volume:

once the break-even point has been reached, NOI will increase by CM per unit for each additional unit sold.

Two approaches to predict profit using CVP analysis:1)Income Statement approach2)Incremental approach: ΔNOI = ΔCM – ΔFE

Review: CVP Analysis

Review

Margin of Safety (units, sales, percentage)

Degree of Operating Leverage

Sales Mix and Break-even Analysis

Monday, February 21: class time & in the classroom.

The exam will cover lectures 1 through 8 and chapters 2, 3, 5, and 6.

Please plan to arrive 10 minutes earlier. The exam will start when everyone in the room has an exam packet and will stop promptly after 100 minutes or the end of the class, whichever comes earlier.

Please spread out as much as possible when you get seated. I may ask you to change seats if I determine that you sit too close to the other student. Your cooperation will expedite the exam handout process so that all students will have more time to work on the exam.

This is a closed-book exam and you may not use any cheat sheet. I may choose not to answer your question during the exam, to be fair.

You will need a non-programmable calculator. Please bring one!

Midterm Exam Information

Type of questions Multiple Choice Questions (6%)

No partial credit

Problems (94%)Show your work with legible and carefully labeled computations so that I can assign partial credit. If I cannot understand your computations, I will not assign partial credit.

Similar to practice problems in the lecture notes and HW problems.

Practice exam questions (based on past years’ exam) posted on the class website for your information only. (warning: this year’s exam questions may be different!)

• Carefully study lecture notes• Re-work problems in the lecture notes• Re-work HW and quiz problems• Work on practice exam questions on the class website• If you need more practice, use the review problem at the end of

each chapter in the textbook. • Don’t look at the solutions before you have made at least one

serious attempt to solve each problem.

• Come to TA’s or my office hours to clarify difficult materials. TA office hours this Thursday 2:30pm-4pm Additional office hours? There will be no office hour on Monday, Feb 21 (to be fair with

section 1 students)

Studying for the exam

• I will post the exam solutions on the class website

• I will try my best to post your exam grades on Blackboard ASAP. Please understand that it takes a lot of time to assign partial credits and I will be working extremely hard to ensure that I grade your exam consistently and fairly.

• I will return the graded test to you ASAP. Grade disputes procedure is written in detail on the syllabus.

After the exam

Decision

Making

Formulating long-and short-term plans

(Planning)

Formulating long-and short-term plans

(Planning)

Measuring performance

(Controlling)

Measuring performance

(Controlling)

Implementing plans (Directing and

Motivating)

Implementing plans (Directing and

Motivating)

Comparing actual to planned

performance (Controlling)

Comparing actual to planned

performance (Controlling)

Begin

Review: what do managers do and how MA can help

MA provides information that help managers make decisions throughout the planning and control cycle.

Review: Managerial vs. Financial Accounting

Financial Accounting

Managerial Accounting

Users

Time Focus

Emphasis Verifiability and Precision

Subject The whole Organization

Requirement Follow GAAP

Review: cost behavior

__________ per unit does NOT change when activity level changes.

Total ____________ does NOT change when activity level changes.

________________ increases when activity level increases.

________________ decreases when activity level increases.

________________ is the range of activity within which the assumptions about cost behavior are valid.

Review: cost classification for decision making

______________ are costs that differ between two (or more) alternatives.

______________ is the value of the next best alternative foregone as the result of making a decision.

______________ is a cost that has already been incurred and cannot be changed by any decision made now or in the future.

______________ is not a differential cost and should be ignored when making decisions.

DirectMaterial

DirectLabor

ManufacturingOverhead

Manufacturing Costs = ________ Costs

Marketing/ Selling Costs

Administrative Costs

Nonmanufacturing Costs = _______ Costs

Review: cost terms under Absorption Costing

Review: Manufacturing Cost Flows

Raw Material Purchases

Direct Labor

Balance Sheet Costs Inventories

Income StatementExpenses

ManufacturingOverhead

Goods Sold

How to show product cost flows using T-accounts?

Review: Job-order costing vs. Process costing

A firm making built-to-order products typically use ___________ costing.

A firm mass-producing a single product typically use _________ costing.

Under job-order costing, product costs are accumulated by _______ to get the average product cost for each unit.

Under process costing, product costs are accumulated by _______ to get the average product cost for each unit.

Service companies typically use ______________ costing.

Both job-order costing and process costing are _______ costing systems.

Manufacturing overhead is applied (allocated) to individual jobs (work-in-process) based on a ___________ rate (POHR).

Review: MOH Application in job-order costing

POHR = Estimated total MOH cost / __________ total activity level

Applied MOH = POHR * ________ activity level

_______ MOH - Applied MOH

At the ________ of the period, calculate:

________ the period, calculate:

At the _______ of the period, calculate:

to determine whether MOH was underapplied or overapplied.

Review: Job-Order Costing

1. If Applied MOH>Actual MOH, then MOH is ________ for the period.

If Applied MOH<Actual MOH, then MOH is __________ for the period.

2. What is the journal entry to apply MOH to jobs during the period?

3. What is the adjusting journal entry to close the overapplied (underapplied) MOH to CGS at the end of the period?

Review: Product Cost Flow in Job-order Costing

FinishedGoods

FinishedGoods

Cost of GoodsSold

Cost of GoodsSold

Direct LaborDirect Labor

Applied MOH

Applied MOH

Direct MaterialsDirect

Materials

Work-in-Process (JOB)

Review: Cost Behavior

True Variable Cost (a=0, b>0)Total cost: Y=bX, increases with XAverage cost: Y/X=b, constant

Fixed Cost (a>0, b=0)Total cost: Y=a, constantAverage cost: Y/X=a/X, decreases with X

Mixed Cost (a>0, b>0)Total cost: Y=a+bX, increases with XAverage cost: Y/X=a/X + b, decreases with activity level X.

(1) Select the highest- & the lowest- activity levels: Xh, Xl

(2) Fit a line through the two data points: (Xh, Yh), (Xl, Yl)

Yh =a + bXh b=(Yh - Yl)/(Xh - Xl)

Yl =a + bXl a= ?

The slope of the line: b = Variable Cost per unit

The intercept of the line: a = Total Fixed Cost

Review: Cost Function & High-low Method

Cost Function: Y = a + bX

Used primarily forexternal reporting

Used primarily for Managerial Decision making

Review: The Contribution Format Income Statement

Review: The Contribution Margin Method

per Unit CM

Expenses Fixedin UnitsPoint even -Break

Ratio CM

Expenses FixedDollars Salesin Point even -Break

Per Unit CM

ProfitTarget Expenses FixedProfitTarget attain tosales Units

Sales – Variable Expenses – Fixed Expenses = NOI

Price * X VC/unit * X $$$ $0

Review: The Equation Method

B.E.P in sales dollars = B.E.P. in Units * Price

Let B.E.P. in units = X