acct 2302 fundamentals of accounting ii spring 2011 lecture 16 professor jeff yu
Post on 01-Jan-2016
218 Views
Preview:
TRANSCRIPT
ACCT 2302
Fundamentals of Accounting II
Spring 2011
Lecture 16
Professor Jeff Yu
Review: ROI and Residual Income
MarginMargin
TurnoverTurnoverROI = NOI ÷ AOA
AOA
Sales
Sales
NOI
RI = NOI - Required rate of return × AOA
Review: Residual Income VS. ROI
Under ROI, the basic message is:
Maximize rate of return, a percentage.
Under the residual income approach, the basic message is:
Maximize residual income, an absolute amount.
Residual income may encourage managers to make profitable investments that would be rejected by managers using ROI to evaluate that same investment.
However, residual income cannot be used to compare the performance of divisions with different sizes (i.e. different AOA).
Review: The Balanced Scorecard
Management translates its strategy into performance measures (both financial and non-financial) that employees understand.
Management translates its strategy into performance measures (both financial and non-financial) that employees understand.
Performancemeasures
Customers
Learningand growth
Internalbusinessprocesses
Financial
Wednesday, March 30: class time & in the classroom.
The exam will cover lectures 9 through 16 and chapters 8 through 12.
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. But you may bring a one-page (single sided) 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 II 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.
• Carefully study lecture notes• Re-work problems in the lecture notes• Re-work HW and quiz problems• 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 my additional office hours to clarify difficult materials. Additional office hours? There will be no office hour on Wednesday, March 30 (to be fair
with section 1 students) There will be no TA office hours this Thursday
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
Review: Activity–Based Costing
Purposes: ABC is for internal decision making (e.g. drop or retain a segment), while absorption costing is for external reporting (e.g. value inventory, CGS).
Product Cost: ABC assigns some manufacturing (excluding e.g. factory manager’s office supplies) & some nonmanufacturing costs (e.g. shipping costs, sales commissions) to products on a cause-and-effect basis, while absorption costing assigns all manufacturing costs and none of the nonmanufacturing costs to products.
Overhead cost pool: ABC uses many overhead cost pools, each with unique cost driver, while absorption costing typically has only one plant-wide cost pool and uses either DLH or MH as the single cost driver.
Activity-based Costing (ABC) vs. Traditional Absorption Costing
Review: Steps for Implementing ABC
1. Define activity cost pools & activity measures.
2. Assign overhead costs to activity cost pools: first-stage allocation.
3. Calculate activity rates: for each activity cost pool, divide total assigned OH costs by estimated total activity levels.
4. Assign OH costs to the specific product or customer using the activity rates: second-stage allocation
Assigned OH = Activity Rate * Actual activity level
5. Prepare management reports: calculate product margin and customer margin.
Budgeted Sales $ = budgeted sales in Units * unit price
Expected cash collections (inflow)
Budgeted Account Receivable Balance
Budgeted Production units = budgeted Sales in Units + desired ending F.G. Inventory – beginning F.G. Inventory
Review: Profit Planning
Budgeted R.M. Purchase in units
= budgeted Production in Units * R.M. needed for each unit + desired ending R.M. inventory – beginning R.M. Inventory
Expected cash disbursements for R.M. (or Accounts Payable)
Budgeted DL cost = budgeted DL hours * hourly rate(Adjust for “guaranteed hours” & higher hourly rate for overtime)
Budgeted MOH cost (Important: calculation of POHR)
Budgeted S&A expense
Budgeted ending F.G. Inventory
Review: Profit Planning
Production costs per unit Quantity Cost Total Direct materials 5.00 lbs. 0.40$ 2.00$ Direct labor 0.05 hrs. 10.00$ 0.50 Manufacturing overhead 0.05 hrs. 49.70$ 2.49
4.99$
Budgeted finished goods inventory Ending inventory in units 5,000 Unit product cost 4.99$ Ending finished goods inventory 24,950$
From Production BudgetFrom Production BudgetFrom Production BudgetFrom Production BudgetPOHR from MOH budgetPOHR from MOH budgetPOHR from MOH budgetPOHR from MOH budget
Review: Ending F.G. Inventory Budget
From DM & DL From DM & DL budgetbudget
From DM & DL From DM & DL budgetbudget
Cash Budget: (1) determine the amount of cash excess or deficiency; (2) determine required borrowing if cash deficiency; (3) calculate interest expense.
Budgeted Balance Sheet
Budgeted Income Statement
Review: Profit Planning
Review: Performance Evaluation
Cost Center(controls costs only) Spending Variance;
Standard Cost Variances
Profit Center(controls costs & revenues)
SegmentedIncome Statement(Segment Margin)
Investment Center(controls costs & revenues
& Investments)
Return on Investment (ROI);Residual Income
Evaluation Tool
Review: Flexible Budget
Flexible budget is prepared based on the actual activity level and is used for performance evaluation (control) purpose.
Activity Variance = Flexible budget amount – planning (static) budget amount
Spending Variance = Actual cost – flexible budget cost Spending variance is unfavorable if positive, favorable if negative;
Spending variance captures the efficiency of cost control.
Revenue Variance = Actual revenue – flexible budget revenue
Revenue variance is favorable if positive, unfavorable if negative;
Review: Standard Cost
Standard vs. Budget: • A budget is set for total costs;• A standard is set for per unit cost;
Quantity standards are set for each unit of production (How much units of input are needed for each unit of output?)
SQ = standard quantity of materials allowed for the actual output
SH = standard hours allowed for the actual output
Price standards are set for each unit of input (How much should be paid for each unit of input?)
Standard Price (SP) for materialsStandard Rate (SR) for labor and overhead
Review: Standard Cost Variances
Materials Price Variance
AQ(AP - SP)
Labor/VOH Rate Variance
AH(AR – SR)
Materials Quantity Variance
SP(AQ - SQ)
Labor/VOH Efficiency Variance
SR(AH – SH)
AP (AR)= Actual Price (Actual Rate): the amount actually paid foreach unit of the materials (labor or VOH).
SP (SR)= Standard Price (Standard Rate): the amount that should Have been paid for each unit of the materials (labor or VOH).
AQ (AH)= Actual Quantity (Actual Hour): the amount of materials(labor or VOH activity) actually used in the production.
SQ (SH)= Standard Quantity (Stan. Hour) allowed for the actual output = actual production in units * standard quantity (hours) per unit
When material purchased ≠ material used
To compute the PRICE variance, use the total quantity of raw materials PURCHASED.
To compute the QUANTITY Variance, use only the quantity of raw materials USED.
Review: Materials Variances
Sales - Variable ExpensesContribution Margin
- Traceable Fixed costsSegment Margin
NOI for the company = the sum of segment margins minus Common fixed costs.
Important: CVP analyses using the segmented income statement!
Review: Segmented Income Statement
top related