Managerial Accounting

Relevant Cost for non routine decision making

differential cost
Irrelevant incremental (up)
Sunk/Historical= depreciation and book value decremental (down)
unavoidable cost

Special Sales Pricing/ Special Order Pricing/Accept or Reject an Order/Distress Pricing

Relevant: Variable Cost/VO
If the problem is silent include all the variable cost
DM 2.5
DL 3
VMO 0.5
VSAE 1.5
variable cost per unit 7.5
potential unit price 12
margin 4.5
potential unit 2000
Incremental net 9000

Make or Buy
Make Buy
DM 120,000 170
DL 100,000 2000
VO 60,000 340000
Relevant Cost 280,000
Units 2,000
Total Cost 140
Units 2,000
280000
Adv. To Make 60000

Adding or Dropping
300,000 Relevant yun yung imiminus sa CM
240,000
40,000
20,000 Pag Positivie magdedecrease yung income
Pag Negative magiincrease yung income
Sell now or Process Further/Process or Sell
Sales Value after further processing
Sales Value at split off point
Incremental revenue 0
Cost of further processing
Incremental profit or loss 0

MONDAY - QUIZ
Shut down or continue operations/temporary shut down
irrelevant-cost na magpapatuloy
additional shut down cost
start up cost - when operation is resume
I/S Approach
shut down point/Indefference Point = fixed cost if operation are continued-shutdown cost/CM per unit
Continue Shut down
CM per unit (3-2) 1*5000 units= 5,000 0
FC/non variable cost = 5,000 2,000
Operating Income = 0 Operation Loss 2,000
Adv to continue 2,000
ex.
I/S Approach
Continue Shut down
CM 14 *22,000 = 308,000 0
230000*2 = 460,000 OH 170*2= 340,000
310,000*2 = 620,000 SGA 279*2= 558,000
1080000 Start Up 14,000
-772000 OL 912000
Adv to continue
140000

Utilization of Scarce Resource

3 Factors
Profitability - CM
Capacity - MH, Kilos, DL
Market/Demand
ex
x y z
UCM 18 36 20
DL/hr (8) 12 32 16
Time to produce 1.5 4 2
CM/dlh 12 9 10
total profitability (3,000) 36000 27000 30000
Maximum to pay OT 20 17 18
Pricing Products and Services
2 types
1. Cost-plus Pricing (Production Only) (Variable Only)
3 different ways Full Cost Plus Absorption Cost Plus Contribution/Direct/Marginal/Variable
ex
DM -3 3 3 3
DL 3 3 3 3
VOH 1 1 1 1
FOH 2 2 2
VSA 1 1 1
FSA 2 2
12 12 9 8
Mark Up percent = 50% 6 4.5 4
USP 18 13.5 12
2. Target Costing
target cost = anticipated selling price - desired profit
desired net income =Investment*ROI
desired profit = desired net income/units
Computation of Markup
Desired Profit 15% (Investment*rate) 120,000.00
SGA 600,000.00
Gross Income 720,000.00
Cost (cost to make*units) 1,000,000.00
Sales 1,720,000.00
USP (sales/units) 43.00
Cost to make 25
Mark Up 18.00
percent 72%

Friday Quiz
ROI = Income/Average total Asset
Residual Income ratio = ROI - minimum return
Residual Income ratio = average total asset*minimum return
ROI Comparison
Profit margin = OI/Sales
Asset Turnover = sales/average total asset
ROI = Profit margin*asset turnover
Treacable = Relevant

Case 1:
if the 80,000 FC, 25% will be saved if the parts were purchased
20000 Relevant
Make Buy
280000 340000
20,000
320,000
Adv to Make 40,000

Case 3:
Lease the old facility
Rental Income 80,000

Make Buy
280000 340000
80,000 Adv to Buy 20,000
360,000

80000 80,000
41000 20,000
6000 37,000
33000 23,000
 Relevant Approach
Saved FC 3,000 adv of TSD
CM lost 5,000 Disadv of TSD

Net disadvantage of TSD 2,000

Relevant Approach
Saved OH 120000 Adv of TSD
CM lost 308,000 Disadv of TSD
Saved SGA 62000 Adv of TSD
Start Up 14,000 Disadv of TSD
Net disad of TSD 140,000

Optimum Product Combination a b c d

UCM (Selling price - variable cost) 5 15 5 4
time to make 5 10 4 1
CM/hr 1 1.5 1.25 4
Limit time to make 96,000
Product D 4000 1 4000 92,000
Product B - 10 9200 0
CM - D 16000
 CM - B 138000
TCM 154000

n/Direct/Marginal/Variable

if the units differ change the FOH and FS : times the before units
to the FOH then divide it to the after units
Case 2:
Idle facility will be used to produce another product
Will give CM 100,000
Make Buy
280000 340000
CM/Benefit Foregone 100,000 Adv to Buy 40,000
380,000