Manufacturing Cost Accounting Outline Cost Terms, Concepts, and Classifications Job Order Costing Cost Behavior Cost ± Volume ± Profit Activity Based Costing Profit Planning Standard Costs Flexible Budgets and Overhead Analysis Relevant Costs for Decision-Making Product Costs - A Closer Look Raw Materials Beginning raw materials inventory + Raw materials purchased = Raw materials available for use in production Manufacturing Costs Direct materials + Direct labor + Mfg. overhead = Total manufacturing costs Work In Process Beginning work in process inventory + Total manufacturing costs = Total work in process for the period ² Ending work in process inventory = Cost of goods manufactured. Costs associated with the goods that are completed during the period are transferred to finished goods inventory. The Contribution Format Sales Revenue Less: Variable costs Contribution margin Less: Fixed costs Net income Total $ 100,000 60,000 $ 40,000 30,000 $ 10,000 Unit $ 50 30 $ 20 The contribution margin format emphasizes cost behavior. Contribution margin covers fixed costs and provides for income. Calculating Breakeven in Units Here is the information from Wind Bicycle Co.: Sales (500 bikes) Less: variable expenses Contribution margin Less: fixed expenses Net income Total $250,000 150,000 $100,000 80,000 $ 20,000 Per Unit $ 500 300 $ 200 Percent 100% 60% 40% The Master Budget Sales Budget Ending Inventory Budget Direct Materials Budget Selling and Administrative Budget Manufacturing Overhead Budget Production Budget Direct Labor Budget Cash Budget Budgeted Financial Statements The Direct Materials Budget Production Materials per unit Production needs Add desired 23,000 14,500 ending inventory July Total needed Production and Inventory 153,000 244,500 Sales in units 25,000 Less beginning Add desired ending inventory 3,000 13,000 23,000 inventory Total units needed 28,000 Materials to be Less beginning inventory 5,000 purchased 140,000 221,500 Production in units 23,000 Pounds per unit 5 Total pounds 115,000 Desired percent 10% 11,500 Desired ending inventory April 26,000 5 130,000 May 46,000 5 230,000 June 29,000 5 145,000 11,500 156,500 14,500 142,000 Quarter 101,000 5 505,000 11,500 516,500 13,000 503,500 Labor Variances Summary Actual Hours × Actual Rate 1,550 hours × $6.20 per hour = $9,610 Actual Hours × Standard Rate 1,550 hours × $6.00 per hour = $9,300 Standard Hours × Standard Rate 1,500 hours × $6.00 per hour = $9,000 Rate variance $310 unfavorable Efficiency variance $300 unfavorable Flexible Budget Performance Report CheeseCo Cost Formula Per Hour Machine hours Variable costs Indirect labor Indirect material Power Total variable costs Fixed Expenses Depreciation Insurance Total fixed costs Total overhead costs $ 4.00 3.00 0.50 7.50 $ 12,000 2,000 Total Fixed Costs Flexible Budget 8,000 $ 32,000 24,000 4,000 $ 60,000 $ 12,000 2,000 $ 14,000 $ 74,000 Actual Results 8,000 $ 34,000 25,500 3,800 $ 63,300 $ 12,000 2,050 $ 14,050 $ 77,350 Variances 0 $ 2,000 U 1,500 U 200 F $ 3,300 U 0 50 U 50 U $ 3,350 U $ Utilization of a Constrained Resource Let¶s calculate the contribution margin per unit of the scarce resource, machine A1. Product 1 Contribution margin per unit Time required to produce one unit Contribution margin per minute $ ÷ 2 24 $ 15 1.00 min. ÷ 0.50 min. $ 24 min. $ 30 min. If there are no other considerations, the best plan would be to produce to meet current demand for Product 2 and then use remaining capacity to make Product 1.
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