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Chapter 3
Predetermined Overhead Rate and Applied overhead
Estimated Overhead for the Cost pool/ estimated units of the cost driver
Example:

Ben Whitney manufactures holiday decorations. Overhead is applied to products on the basis of direct labor
hours. Last year, total overhead costs were expected to be $85,000. Actual overhead costs totaled $88,750 for
8,400 actual hours. At the end of the year, overhead was underapplied by $4,750.
88750-4750 = 84000
84000/8400 = $10 per hour
Chapter 5
Absorption vs. Variable Costing

Absorption: when units produced exceed units sold, absorption costing reported higher net operating income
than variable costing
Variable: When units sold exceed units produced, variable costing will report higher net operating income than
will absorption costing.
Posey Manufacturing has the following cost information available for the most current year.
Direct materials

$6.00 per unit

Direct labor

$4.00 per unit

Variable manufacturing overhead

$2.00 per unit

Variable S&A costs

$1.00 per unit

Fixed manufacturing overhead

$80,000

Fixed S&A costs

$25,000

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During the year, Posey produced 12,500 units, out of which 11,000 were sold for $60 each.
Required
A. Produce an income statement using variable costing.
Sales = 660,000 (11,000 x60)
Variable Costs= $13 per unit (6+4+ 2+1 x11000) = 143,000
Contribution Margin = $517,000
Fixed Cost (80000 + 25000) = 105000
Net Operating Income = 412000

B. Produce an income statement using absorption costing.

Sales= 660,000
COGS (6 + 4 + 2 + 6.40) ( 80,000 / 12500=6.40) = 202,400
Gross Profit = 457600
S+A Cost ( 25,000 + 1.00 per unit S&A variable cost x11,000)= 36000
Net Operating Income = 421,600
Chapter 6 - 3 questions
Contribution Margin Ratio
Contribution Margin / Sales
Contribution Per Unit

Break Even (Units)

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Fixed Cost / Contribution Margin per unit
Break- Even (Sales)
Fixed Cost / Contribution Margin Ratio
Before Tax Profit
= After-tax profit / (1- Tax Rate)
Target Profit Analysis
Fixed Cost + Target Profit (before tax) / Contributuion Margin per Unit
Chapter 7

Sun Devil Golf Balls produces two types of golf balls: the pro model and the tour model. The balls are sold to
retailers in cartons containing 360 balls (30 boxes containing 4 sleeves per box, with each sleeve holding 3
balls). Both models are made with the same machines. It takes 15 minutes of machine time to produce 360 pro
model golf balls, whereas it takes 30 minutes to produce the same number of tour model balls. The difference in
production time results mainly from the different materials used in construction. The relevant data concerning
the two models are as follows:

Required
A. If the amount of machine time available to Sun Devil Golf Balls is limited, which golf ball should be
produced in the larger quantity?
Pro model = C.M. = 800
Tour = C.M.= 400
B. If the total machine time available is 110 hours per month and the demand for each model of golf ball is
108,000 balls per month, how many of each model should be produced to maximize profit? (Round your
answer to the nearest carton.)
108,000 / 360 = 300
300 x .25 = 75 hours
110- 75 = 35 hours left
35 *2 = 70 tour balls

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Chapter 8
Net Present Value

Chapter 9

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Chapter 10

Sales Price Variance = (Actual sales price Expected sales price) x Actual volume
Basic Variance Analysis Model
Price Variance = Actual Quantity (AQ) x [Actual price (AP) Standard Price (SP)]
Usage Variance = Standard Price x [Actual Quantity Standard quantity]

Direct Material Variances

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Direct Material Variances when quantity purchased differs from quantity used

Direct Labor Variances

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Variable Overhead Variances

Variable Overhead Variances

Fixed overhead Variances

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Quiz 10
A budget for a single unit of a product or service is called as a:
-

Standard Cost

Tulley Manufacturing has an unfavorable direct labor rate variance. Which of the following would
be the most likely reason for this variance?
-

The company gave employees an unexpected raise due to union negotiations

Which of the following statements is true regarding "management by exception"?

-

It requires managers to investigate variances that are material in amount

Chapter 11
Responsibility accounting this means holding managers responsible for only those things under
their control.
Cost Center Responsible for costs only (i.e purchasing manager of a store)
Revenue Center Responsible for revenue only (i.e sales manager of a retail store)
Profit Center Responsible for costs and revenues (i.e overall manager of a store)
Investment Center- Responsible for profit and investments in property, plant, and equipment (i.e
Core division manager of an international company)
Return on Investment Formulas

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Residual Income
Residual income = Net operating income (Average operating assets x Minimum required rate of
return)

Quiz 11
A decentralized organization is one in which:
-

Managers at various levels throughout the organization are given decision-making

authority

Which of the following statements about responsibility accounting is true?

-

Managers should be held responsible for only those things under their control

Finley Company has its company headquarters based in Raleigh, North Carolina, and has six individual retail stores spread throughout North
Carolina and Virginia. Which of the following costs would most likely be treated as a common cost for segmented reporting purposes?
-

Least costs for the company headquarters

Return on Investment (ROI) is calculated by:

-

Multiplying the margin by the turnover

Manufacturing cycle efficiency (MCE) is calculated as follows:

-

Value added time / manufacturing-cycle time

Chapter 12
Current Ratio

A/R Turnover Ratio

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Number of days to collect A/R

Inventory Turnover

Number of days inventory is held before sales

Working Capital

Earnings Per Share