Haha

FINANCIAL MANAGEMENT REVIEWER LECTURES
Lecture 1 - Cost Concept and Classification Part 1
Introduction
Highlights:
1. The costs refer to the value of an activity - either an ASSET or
Expense.
2. As management accountants, your role is to give ADVICE or
RECOMMENDATION to the management
on the matters concerning operation or even the strategic ones.
3. Cost Driver - cause that causes the cost. (Dahilan ng
paggastos)
Cost Behavior:
1. Variable Costs
Cost Driver / Unit Total
Activity Cost Cost
Level 1 1,000.00 10.00 10,000.00
Level 2 2,000.00 10.00 20,000.00
Level 3 3,000.00 10.00 30,000.00
Observations on Variable Cost:

1. Unit cost is constant within RELEVANT RANGE.
2. Relationship between cost driver and total cost is direct,
meaning if tumaas
ang cost driver, the same direction will be for total cost.
*The cost driver serves as the independent variable (x) while the
total cost serves
as the dependent variable (y).
Cost Behavior
Fixed Costs
Observations:
1. Within relevant range, the total fixed cost is constant.
2. The relationship between the cost driver and unit cost is
INVERSE / INDIRECT.
Illustration:
No. of Unit Total
Hours Cost Cost
Sample A 1.00 6,000.00 6,000.00
Sample B 2.00 3,000.00 6,000.00
Sample C 3.00 2,000.00 6,000.00
Total Cost
P6,000
Cost Driver / No. of Hours
Cost Behavior Application No.

1
Units 150,000.00 200,000.00 250,000.00

Total Variable Cost 225,000.00 300,000.00 375,000.00
Total Fixed Cost 1,500,000.00 1,500,000.00 1,500,000.00
1,800,000.0
Total Costs 1,725,000.00 1,875,000.00
0
Cost per Unit:

Variable Cost 1.50 1.50 1.50
Fixed Cost 10.00 7.50 6.00
11.50 9.00 7.50
Cost Behavior Application No.

2
Units 5,000.00 10,000.00 20,000.00
Total Variable Cost 25,000.00 50,000.00 100,000.00
Total Fixed Cost 10,000.00 10,000.00 10,000.00
Total Costs 35,000.00 60,000.00 110,000.00

Cost per Unit:
Fixed Cost 2.00 1.00 0.50
7.00 6.00 5.50
Cost Concept and Classification

Theories
1 D
2 D
3 C
Raw Materials and Direct Labor are generally classified as VARIABLE
4 A
COST.
5 B
6 B
7 B
8 B
9 D
10 C
Cost Segregation Method

When the cost does not exhibit exclusive behavior as VARIABLE or FIXED cost, then it is
observed as MIXED COST or SEMI-VARIABLE COST. Accordingly, the cost is segregated through:
a. HIGH - LOW METHOD - When the problem is silent, use this method.
b. SCATTERGRAPH
c. LEAST SQUARE METHOD
Shell Company: Using HIGH-LOW METHOD
October November December Classification

20,000.0
Electricity 15,000.00 18,000.00 MIXED COST
0
Per Hour Value 16.67 21.43 18.95
15,000.0
Depreciation 15,000.00 15,000.00 FIXED COST
0
Factory VARIABLE
9,600.00 5,600.00 7,600.00
Supplies COST
Per Hour Value 8.00 8.00 8.00
Property Taxes 12,000.0 12,000.00 12,000.00 FIXED COST

0
Machine Hours 1,200.00 700.00 950.00 Cost Driver

HIGH LOW
In using High-Low Method, we identify the highest and the lowest point using the cost
driver.
Step 1: Compute the variable cost per machine hour (CONSTANT IN VARIABLE COST)
Variable Cost per Machine Total Cost (Dependent Variable - Y)

Hour Machine Hours (Independent Variable - X)
Variable Cost per Machine (P20,000 - P15,000)

10.00
Hour (1,200 - 700)
Shell Company
Fixed
Variable Cost
Cost
Semi-Variable
Electricity 10.00 8,000.00
Cost
Depreciation 15,000.00 Variable Cost
Factory Supplies 8.00 Fixed Cost
Property Taxes 12,000.00 Fixed Cost
18.00 35,000.00
Equation: P18 per Machiner Hour x Machine

Hours + P35,000
To project the January total cost

Total Cost = P18 per Machine Hour x 1,600 MH
+ P35,000
Total Cost = P28,800 + P35,000 = P63,800
Machine Hours
Per Machine
Total 1,600.00 2,000.00
Hour
Fixed Total
Variable Cost Total Cost
Cost Cost
Electricity 10.00 8,000.00 24,000.00 28,000.00
Depreciation 15,000.00 15,000.00 15,000.00
Factory Supplies 8.00 12,800.00 16,000.00
Property Taxes 12,000.00 12,000.00 12,000.00
18.00 35,000.00 63,800.00 71,000.00
103,600.00
Pigs Industries
Machine Electricity
Hours Costs
High
November 9,024.00 37,200.00
Point
Low
March 3,648.00 16,200.00
Point
Step 1: Compute the variable cost per machine hours (constant in the
variable cost)
Variable Cost per Machine Hour = Change in Electricity Costs / Change in Machine
Hours
(P37,200 -
3.90625
P16,200)
0
Variable Cost per Machine Hour (9,024 - 3,648)
Step 2: Compute for the TOTAL FIXED COST (constant in

the fixed cost)
Total Variable Total Fixed Total
Cost Cost Cost
High Points 35,250.00 1,950.00 37,200.00
Low Points 14,250.00 1,950.00 16,200.00
Electricity Costs = P3.90625 per Machine Hour x Machine

Hours + P1,950
Total Variable Total Fixed Total
Cost Cost Cost
if January 18,750.00 1,950.00 20,700.00
Cost Driver Determinants:

Cost Driver Determinants:
Degree of Correlation - Highest Value in correlation analysis is 1 or 100%;
symbol = "r"
*Directions - positive (same direction ang independent at dependent
variable)
*Directions - negative (opposite direction ang independent at dependent
variable)
*The higher the positive correlation, the better relationship the variables has.
Degree of Correlation - Highest Value in correlation
analysis is 1 or 100%; symbol = "r"
*Directions - positive (same direction ang independent at
dependent variable)
*Directions - negative (opposite direction ang independent
at dependent variable)
*The higher the positive correlation, the better relationship
the variables has.
Degree of Determination - how influential the

independent variable to dependent variable;
symbol = "r^2"
Abstract Example:
Degree of Degree of
August September October
Correlation ® Determination (r^2)
1,000.0
Total Cost 5,000.00 3,000.00
0
Cost Drivers:
Cost Driver A 100.00 300.00 200.00 0.85 0.72
Cost Driver B 10.00 15.00 20.00 -0.75 0.56
1,000.0
Cost Driver C 500.00 2,000.00 0.86 0.74
0
Low High
*Outliers are extreme data either low or high

and are not included in the computation.
*When the problem is silent, there is NO
OUTLIER unless otherwise stated.

Least Square Method
Application
Months Machine Hours Electricity Costs
X Y XY X^2
January 4,800.00 22,080.00 105,984,000.00 23,040,000.00
February 5,568.00 25,200.00 140,313,600.00 31,002,624.00
March 3,648.00 16,200.00 59,097,600.00 13,307,904.00
April 5,952.00 27,600.00 164,275,200.00 35,426,304.00
May 7,296.00 33,900.00 247,334,400.00 53,231,616.00
June 6,336.00 26,400.00 167,270,400.00 40,144,896.00
July 7,872.00 29,700.00 233,798,400.00
August 6,720.00 27,300.00 183,456,000.00 45,158,400.00
September 3,840.00 18,600.00 71,424,000.00 14,745,600.00
October 7,104.00 31,200.00 221,644,800.00 50,466,816.00
November 9,024.00 37,200.00 335,692,800.00 81,432,576.00
December 8,064.00 33,300.00 268,531,200.00 65,028,096.00
76,224.00 328,680.00 2,198,822,400.00 452,984,832.00
Equation 1: 328,680 = 12a + 76,224b
2,198,822,400 = 76,224a +
Equation 2:
514,953,216b
Algebraic Solution:
6,352.00
a b
2,087,775,360.00 76,224.00 484,174,848.00
2,198,822,400.00 76,224.00 514,953,216.00
(111,047,040.00) - (30,778,368.00)
b value 3.60796
Substituting to equation 1 the value of b

328,680.00 12.00 a + 275,012.94
53,667.06
4,472.25 a - Value
Electricity Cost Equation = P3.60796 per

Machine Hour x Machine Hours + P4,472.25
Lecture 2 - Variable and Absorption Costing Part 1
Case 1 - Absorption and Variable Costing

*Absorption Costing - presentation of income statement based on accounting standards
Accounting Standards on the presentation of the expenses:
a. Production Costs
b. Operating Costs / Expenses (OPEX)
*Function of Expense Method / Cost of Goods Sold Method
*Traditional Costing
*Variable Costing - presentation of income statement based on COST BEHAVIOR

a. Variable Cost
b. Fixed Cost
*Direct Costing / Contribution Margin Approach
Absorption / Traditional Costing

Product Costs per unit:
Direct Materials 7.50
Direct Labor 5.00
Factory Overhead - Variable 6.25
(P1,100,000 / 137,500
Factory Overhead - Fixed 8.00
units)
26.75
5,250,000.0
Sales (P42 x 125,000 units SOLD)
0
3,343,750.0 (P26.75 x 125,000 units
Less: Cost of Goods Sold
0 SOLD)
1,906,250.0
Gross Profit / Gross Income
0
Less: Operating Expenses
(P1.25 x 125,000 units
Selling and Admin. Expense - Variable 156,250.00
SOLD)
Selling and Admin. Expense - Fixed 687,500.00
1,062,500.0
*Operating Income / Operating Profit
0
*Earnings BEFORE INTERESTS AND TAXES (EBIT)
Variable / Direct Costing / Contribution Margin

Approach
Product Costs per unit:
Direct Materials 7.50
Direct Labor 5.00
Factory Overhead - Variable 6.25
18.75
*Fixed Manufacturing Cost is

treated as OPERATING EXPENSES.
(P42 x 125,000 units

Sales 5,250,000.00
SOLD)
Less: Variable Costs
(P18.75 x 125,000 units
a. From Production 2,343,750.00
SOLD)
(P1.25 x 125,000 units
b. From Operation 156,250.00 2,500,000.00
SOLD)
Contribution Margin 2,750,000.00
Less: Fixed Costs
a. From Production 1,100,000.00
b. From Operation 687,500.00 1,787,500.00
Earnings before Interests and Taxes 962,500.00
Cost per Unit - Fixed Manufacturing (P1,100,000 / 137,500

8.00
OH units PRODUCED)
Cost of Ending Inventory 100,000.00 (12,500 x P8)
Absorption Costing Net Income 1,062,500.00

Variable Costing Net Income 962,500.00
Reconciliation 100,000.00
Reconciliation: A-B-E-V
Absorption Net Income 1,062,500.00
Add: Beginning Inventory -
Less: Ending Inventory 100,000.00
Variable Net Income 962,500.00
Reminder:
P-S-A: Production is Higher than Sales
- Absorption
S-P-V: Sales is higher than Production
- Variable
Case 2 - Absorption and Variable Costing

Variable Costing Income Statement
Sales 800,000.00 (P20 x 40,000 units sold)
Less: Variable Costs 280,000.00 (P7 x 40,000 units sold)
Contribution Margin 520,000.00
Less: Fixed Costs 95,000.00
Earnings Before Interests and Taxes 425,000.00
Unit Cost of Fixed Factory OH 1.20 (P60,000 / 50,000)

Number of Units Unsold Year End 10,000.00
Absorption Net Income 437,000.00
Add: Beginning Inventory -
Less: Ending Inventory 12,000.00

(P20 x 40,000 units
Sales 800,000.00
sold)
(P6 x 40,000 units
Variable Portion 240,000.00
sold)
(P1.20 x 40,000 units
Fixed Portion 48,000.00 288,000.00
sold)
Gross Profit 512,000.00

(P1 x 40,000 units
Variable Portion 40,000.00
sold)
Fixed Portion 35,000.00 75,000.00
Earnings Before Interests and
437,000.00
Taxes
Lecture 2 - Variable and Absorption Costing Part 2
Absorption Costing
Product Cost Per Unit:
Materials 3,450.00
Labor 2,300.00
Factory Overhead - Variable 1,150.00
(P4,600 / 2,300 units
Factory Overhead - Fixed 4,600.00 2.00
PRODUCED)
11,500.00 5.00
(P11,500 / 2,300 units
PRODUCED)
Absorption Costing
Income Statement
Sales 50,784.00 (1,840 units x P27.60)
Less: Cost of Goods Sold 9,200.00 (1,840 units x P5.00)
Selling and Admin - Variable 2,760.00
Selling and Admin - Fixed 1,840.00 4,600.00
Earnings Before Interests
36,984.00
and Taxes

Add: Beginning Inv - FOH-
-
Fixed
Less: Ending Inv - FOH-
920.00
Fixed
Production 2,300.00
Sales 1,840.00
Ending Inventory 460.00
Variable Costing Income

Statement
(1,840 units x
Sales 50,784.00
P27.60)
Less: Variable Cost
(1,840 units x
a. Production 5,520.00
P3)
(1,840 units x
b. Operation 2,760.00 8,280.00
P1.50)
Less: Fixed Cost
a. Production 4,600.00
b. Operation 1,840.00 6,440.00

Earnings Before Interests
36,064.00
and Taxes
Product Cost Per Unit:
Materials 3,450.00
Labor 2,300.00
Factory Overhead - Variable 1,150.00
6,900.00 3.00
Abstract Example:
Production 10,000.00
Sales 8,000.00
Selling Price 20.00
Cost Per Unit:
a. Direct Materials 4.00 Variable
b. Direct Labor 3.00 Variable
c. Factory Overhead - Variable 2.00 Variable
d. Factory Overhead - Fixed 1.00
Operating expenses:
a. Marketing and Office Expenses - Variable 2.00 per unit
b. Marketing and Office Expenses - Fixed 34,000.00
Variable Costing Income Statement:
Sales 160,000.00
Less: Variable Costs:
From Production 72,000.00
From Operation 16,000.00 88,000.00
Less: Fixed Costs
(P1 x 10,000
From Production 10,000.00
PRODUCTION)
From Operation 34,000.00 44,000.00
Absoprtion Costing Income Statement

Sales 160,000.00
Less: Cost of Goods Sold 80,000.00
Marketing and Office - Variable 16,000.00
Marketing and Office - Fixed 34,000.00
Add: Beginning Inv - FOH-Fixed -
Less: Ending Inv - FOH-Fixed 2,000.00
Lecture 2 - Variable and Absorption ACosting Part 3
Case 4: 2 year reconciliation

2022 2023
Beginning Inventory - 3,500.00
Production 25,000.00 21,600.00
Ending Inventory 3,500.00 2,200.00
Sales 21,500.00 22,900.00
Higher EBIT Absorption Variable
Production Cost per Unit: POV of Absorption Costing

Variable Manufacturing Costs 18,000.00 15,552.00
Fixed Manufacturing Costs 12,000.00 12,960.00
Total Manufacturing Costs 30,000.00 28,512.00
Cost Per Unit (Total / Production) 1.20 1.32

a. Variable Manufacturing 0.72 0.72
b. Fixed Manufacturing 0.48 0.60
1.20 1.32
129,000.0
Sales 137,400.00
0
Beginning Inventory - 4,200.00
Add: Total Manufacturing Costs 30,000.00 28,512.00
Cost of Goods Available for Sale 30,000.00 32,712.00
25,800.00 29,808.00
103,200.0
0
Selling and Administrative - Variable 5,400.00 9,000.00
Selling and Administrative - Fixed 5,400.00 9,000.00
Earnings Before Interests and Taxes 92,400.00 89,592.00
Absorption EBIT 92,400.00 89,592.00
Add: Beginning Inventory - Fixed OH - 1,680.00
Less: Ending Inventory - Fixed OH 1,680.00 1,320.00
Variable EBIT 90,720.00 89,952.00
Abstract Example:
2022 2023 2024
Beginning Inventory -
Production 100,000.00 120,000.00 150,000.00
Ending Inventory 20,000.00 10,000.00 30,000.00
Sales per Unit 15.00 15.00 20.00

Manufacturing Costs per Unit :
Direct Materials 1.00 1.00 2.00
Direct Labor 2.00 2.00 3.00
Factory Overhead - Variable 3.00 3.00 4.00
Factory Overhead - Fixed 4.00 3.00 5.00
Selling and Administrative - Variable 50,000.00 50,000.00 70,000.00
Selling and Administrative - Fixed 25,000.00 25,000.00 50,000.00
2022 2023 2024

Beginning Inventory - 20,000.00 10,000.00
Production 100,000.00 120,000.00 150,000.00
Sales 80,000.00 130,000.00 130,000.00
Higher EBIT Absorption Variable Absorption
Absorption Costing Income

2022 2023 2024
Statement
Sales 1,200,000.00 1,950,000.00 2,600,000.00
Beginning Inventory - 200,000.00 90,000.00
Add: Total Manufacturing Costs 1,000,000.00 1,080,000.00 2,100,000.00
Cost of Goods Available for Sale 1,000,000.00 1,280,000.00 2,190,000.00
800,000.00 1,190,000.00 1,770,000.00
Gross Profit 400,000.00 760,000.00 830,000.00

Less: Selling and Administrative 75,000.00 75,000.00 120,000.00
Earnings Before Interests and Taxes 325,000.00 685,000.00 710,000.00
Absorption EBIT 325,000.00 685,000.00 710,000.00
Add: Beginning Inventory - Fixed OH - 80,000.00 30,000.00
Less: Ending Inventory - Fixed OH 80,000.00 30,000.00 150,000.00
Variable EBIT 245,000.00 735,000.00 590,000.00
Lecture 3 - Cost Volume Profit Analysis Part 1
Break Even Point:

Total Revenue = Total Costs
Total Revenue = Total Variable Costs + Total Fixed Costs
(SP / Unit x Units Sold) = (VC / Unit x Units Sold) + Total Fixed Costs
(SP / Unit x Units Sold) - (VC / Unit x Units Sold) = Total Fixed Costs
Units Sold ( SP / Unit - VC / Unit) = Total Fixed Cost
Units Sold = Total Fixed Cost / (SP / Unit - VC / Unit)

Units Sold = Total Fixed Cost / CM per Unit
Interpretation:
1. This will tell me how many units I will need to sell in order
to break even or walang kita or lugi.
2. This will tell me how many units I will need to sell in order
to RECOVER THE FIXED COST.
Sales 100.00
Less: Variable Cost 80.00
Contribution Margin 20.00
Less: Fixed Cost 20.00
EBIT -
At Break-even point:
a. EBIT is zero.
b. Contribution Margin = Fixed Cost
Case 1 - CVP Analysis

Units Sold Per Unit Total
Sales 35,000.00 160.00 5,600,000.00
Less: Variable Cost 35,000.00 104.00 3,640,000.00
Contribution Margin 35,000.00 56.00 1,960,000.00
Less: Fixed Cost 1,568,000.00
Earnings Before Interest and Taxes 392,000.00
35% 35%
BEP in Units (P1,568,000 / P56 per unit) 28,000.00
Actual Units Sold 35,000.00

Less: BEP in Units 28,000.00
Margin of Safety (MOS) in Units 7,000.00
Multiply: CM per Unit 56.00
BEP in Peso = Total Fixed Cost / CM Ratio

*CM Ratio = CM / Sales
*BEP in Peso = BEP in Units x Selling Price 4,480,000.00
(28,000 units x
P160)
BEP in Peso = (P1,568,000 / 35%) 4,480,000.00
Actual Sales 5,600,000.00

Less: BEP in Peso 4,480,000.00
Margin of Safety (MOS) in Peso 1,120,000.00
Multiply: CM Ratio 35%
Alternative Computation of EBIT:

MOS Ratio (P1,120,000 / P5,600,000) 20%
Multiply: CM Ratio 35%
Net Profit Margin / Net Profit Ratio / Net
7%
Income Margin
Multiply: Actual Sales 5,600,000.00
Case 2
Units Sold Value per Unit Total
Sales 15,000.00 40.00 600,000.00
Less: Variable Expenses 15,000.00 28.00 420,000.00
Contribution Margin 15,000.00 12.00 180,000.00
Less: Fixed Expenses 150,000.00
Net Income 30,000.00
CM Ratio 30% 30%
BEP in Units 12,500.00 (P150,000 / P12 per unit)

BEP in Peso 500,000.00 (P150,000 / 30%)
(12,500 units of BEP x
500,000.00
P40)
Actual Sales in Units 15,000.00

MOS in Units 2,500.00
Multiply by: CM per Unit 12.00
EBIT / Net Income 30,000.00
Actual Sales 600,000.00

Less: BEP in Peso 500,000.00
MOS in Peso 100,000.00 17%
Multiply by: CM Ratio 30%
MOS in Ratio 17%
Multiply by: CM Ratio 30%
Net Profit Margin 5%
Multiply by: Actual Sales 600,000.00
Presentation 1 - If the net income should be

P18,000.
Sales 14,000.00 40.00 560,000.00
Presentation 2 - If the net income should be P18,000.

Presentation 2 - If the net income should be P144,000.

Presentation 1 - If the sales increased by P80,000

Value per
Units Sold Total
Unit
Sales 17,000.00 40.00 680,000.00
Contribution Margin 17,000.00 12.00 204,000.00 204,000.00
Presentation 2 - If the sales increased by P80,000

Increase in EBIT = Increase Sales multiplied by CM Ratio
Reminder: The company should be able to reach the break-
even point.
Increase in EBIT = P80,000 x 30% = P24,000
Case 3
Value per
Units Sold Total
Unit
Sales 5,000.00 38.50 192,500.00
CM Ratio 32.47% 32.47%
(P45,000 /
BEP in Units 3,600.00
12.50)

P18,000.
Value per
Units Sold Total
Unit
Sales 5,040.00 38.50 194,040.00

P18,000.
Value per
Requirement #3 Units Sold Total
Unit
Sales 5,000.00 43.75 218,750.00
20
EBIT 43,750.00
%
Sales - Total Costs (Variable + Fixed) = EBIT

Total Costs represents 80% of sales while EBIT
represents 20% of sales as stated in the problem
Total Costs represents 80% while EBIT
represents 20% as stated in the problem
P175,000 = 80% of Sales
Sales = P175,000 / 80% 218,750.00
Case 4
Value per
Units Sold Total
Unit
Sales 30,000.00 5.00 150,000.00
CM Ratio 40.00% 40.00%
(P50,000 / P2
per unit)
125,000.0 (P50,000 /
BEP in Peso
0 40%)
(P50,000 x P5
per unit)
Scenario A - If the Unit Sales Price increased

by 15%.
Value per
Units Sold Total
Unit
(P5 x
Sales 30,000.00 5.75 172,500.00
1.15)
CM Ratio 47.83% 47.83%
*Take note that all other information remain
the SAME.

104,545.4
BEP in Peso
5
Scenario b - If the Unit Variable decreased by

25%.
Value per
Units Sold Total
Unit
Sales 30,000.00 5.00 150,000.00
(P3 x
75%)
CM Ratio 55.00% 55.00%
the SAME.

BEP in Peso 90,909.09
Case 4 - Sensitivity Analysis

Sales 30,000.00 5.00 150,000.00
Net Income .
CM Ratio 40.00% 40.00%
BEP in Units 25,000.00 (P50,000 / P2 per unit)

125,000.0
BEP in Peso (P50,000 / 40%)
0
(P50,000 x P5 per
unit)
Scenario A - If the Unit Sales Price increased by 15%.

(P5 x
Sales 30,000.00 5.75 172,500.00
1.15)
CM Ratio 47.83% 47.83%
*Take note that all other information remain the
SAME.

104,545.4
BEP in Peso
5
Scenario b - If the Unit Variable decreased by 25%.

Sales 30,000.00 5.00 150,000.00
(P3 x
75%)
CM Ratio 55.00% 55.00%
*Take note that all other information remain the
SAME.

Scenario C - If the tota fixed costs increase

to P80,000.
Value per
Units Sold Total
Unit
Sales 30,000.00 5.00 150,000.00
Net Income (20,000.00)
CM Ratio 40.00% 40.00%
the SAME.

Scenario D - If the sales price decreases by

20% and the sales volume increases by 20%
Value per
Units Sold Total
Unit
*P5 x
Sales 36,000.00 4.00 144,000.00
80%
Net Income (14,000.00)
CM Ratio 25.00% 25.00%
the SAME.

Scenario E - If the sales price increases by

P0.50 per unit; fixed costs increase by
P10,000, sales volume decreases by 5%.
Value per
Units Sold Total
Unit
Sales 28,500.00 5.50 156,750.00
CM Ratio 45.45% 45.45%
the SAME.

Scenario F - If the variable costs increase by

P0.20 per unit, selling price increases by
12%, and the sales volume decreases by
10%.
Value per
Units Sold Total
Unit
Sales 27,000.00 5.60 151,200.00
CM Ratio 42.86% 42.86%
the SAME.

Case 5 - Multiple Break-Even

Analysis
Sales Mix = Combination of
multiple products to maximize the
profit of the business.
Sales Mix is based on the
number of units sold by each
product.
Product X Product Y Product Z Total

100,000.0
Total Sales 240,000.00 160,000.00 500,000.00
0
Selling Price per unit 50.00 50.00 50.00
Number of Units Sold 4,800.00 2,000.00 3,200.00 10,000.00
Total Variable Costs 72,000.00 80,000.00 88,000.00 240,000.00
Total Contribution Margin 168,000.00 20,000.00 72,000.00 260,000.00
Sales Mix Ratio / Weight 48% 20% 32%

Per Unit:
Sales Price 50.00 50.00 50.00
Less: Variable Cost 15.00 40.00 27.50
Contribution Margin 35.00 10.00 22.50
Contribution Margin Ratio 70% 20% 45%
Weighted Average CM per Unit 16.80 2.00 7.20 26.00

*Composite CM per Unit
Weighted Average CM Ratio 34% 4% 14% 52%
(Total Fixed
Composite BEP in Units 4,128.00 1,720.00 2,752.00 8,600.00 Costs / CM per
Unit)
Product X Product Y Product Z Total

Actual Units Sold 4,800.00 2,000.00 3,200.00 10,000.00
Less: BEP in Units 4,128.00 1,720.00 2,752.00 8,600.00
MOS in Units 672.00 280.00 448.00 1,400.00
Multiply: CM per Unit 35.00 10.00 22.50 26.00
EBIT 23,520.00 2,800.00 10,080.00 36,400.00 36,400.00
Case 6 - Multiple Break-Even Analysis

Chicken Manok Total
Sales in Units 2,000.00 3,000.00 5,000.00
Sales Mix 40% 60% 100%
Per Unit: Chicken Manok

Selling Price 400.00 600.00
Variable Costs 240.00 120.00
Contribution Margin 160.00 480.00
Weighted CM per Unit 64.00 288.00 352.00
(P704,000 / P352 per

Weighted / Composite BEP in Units 800.00 1,200.00 2,000.00
unit)
Chicken Manok Total

Sales 800,000.00 1,800,000.00 2,600,000.00
Less: Variable Costs 480,000.00 360,000.00 840,000.00
Contribution Margin 320,000.00 1,440,000.00 1,760,000.00
Earnings Before Interests and Taxes 1,056,000.00
Chicken Manok Total

Actual Sales in Units 2,000.00 3,000.00 5,000.00
BEP in Units 800.00 1,200.00 2,000.00
MOS in Units 1,200.00 1,800.00 3,000.00
Multiply: CM per Unit 160.00 480.00 352.00
EBIT 192,000.00 864,000.00 1,056,000.00
1,056,000.00
Abstract
Example:
A B C
Sales in Units 2,000.00 3,000.00 5,000.00 10,000.00
Sales Price Per

20.00 30.00 50.00
Unit
Variable Cost
8.00 12.00 20.00
Per Unit
Total Fixed
136,800.00
Costs
A B C TOTAL
Sales Mix 20% 30% 50% 100%
Per Unit:
Sales Price 20.00 30.00 50.00

Contribution
12.00 18.00 30.00
Margin
Weighted CM
2.40 5.40 15.00 22.80
per Unit
Actual Sales in
2,000.00 3,000.00 5,000.00 10,000.00
Units
BEP in Units 1,200.00 1,800.00 3,000.00 6,000.00
MOS in Units 800.00 1,200.00 2,000.00 4,000.00

Multiply: CM per
12.00 18.00 30.00 22.80
Unit
EBIT 9,600.00 21,600.00 60,000.00 91,200.00 91,200.00
A B C
Sales 40,000.00 90,000.00 250,000.00 380,000.00

Less: Variable
16,000.00 36,000.00 100,000.00 152,000.00
Costs
Contribution
24,000.00 54,000.00 150,000.00 228,000.00
Margin
Less: Fixed
136,800.00
Costs
EBIT 91,200.00
Case 7 - Operating Leverage

*Operating leverage is taking advantage of investing
long term assets to produce
more units to sell.
*More long term assets - more fixed costs; more long
term assets; more units to sell
*Operating leverage = multiplier effect
*Operating leverage = Contribution Margin / EBIT
Sales (40,000 units x P600) 24,000,000.00
Less: Variable Costs (40,000 units x P420) 16,800,000.00
Less: Fixed Costs 4,500,000.00
time
Earnings Before Interests and Taxes 2,700,000.00 2.67
s
Alternative in getting the EBIT from 40,000 units to

48,000 units
Step 1 - Get the percent increase in sales
40,000 to 48,000 = Difference / Old = 8,000/40,000 0.20
Step 2 - Multiply DOL by increase 0.53
Step 3 - Add 1 from Step 2 1.53
Step 4 - Old EBIT multiply by Step 3 4,140,000.00
Checking:
Sales (48,000 units x P600) 28,800,000.00
Less: Variable Costs (48,000 units x P420) 20,160,000.00
Less: Fixed Costs 4,500,000.00
Earnings Before Interests and Taxes 4,140,000.00
Application of Operating Leverage

Value per
Case 1 Units Total
Unit
Sales 10,000.00 5.00 50,000.00
Less: Variable Cost 10,000.00 3.00 30,000.00
Less: Fixed Cost 12,000.00
If the sales in units has increased to 15,000 units.

Degree of Operating Leverage 2.50
Increase in Sales in Percentage (5,000 units / 10,000) 0.50
New EBIT Factor 2.25
New EBIT ( DOL x Increase in Sales + 1) x EBIT Old 18,000.00
Checking:
Value per
Units Total
Unit
Sales 15,000.00 5.00 75,000.00
Value per
Case 2 Units Total
Unit
Sales 10,000.00 5.00 50,000.00
If the sales in units has increased by 25,000 units.

Degree of Operating Leverage 2.50
Increase in Sales in Percentage (25,000 units / 10,000) 2.50
New EBIT Factor 7.25
New EBIT ( DOL x Increase in Sales + 1) x EBIT Old 58,000.00
Checking:
Value per
Units Total
Unit
Sales 35,000.00 5.00 175,000.00
Lecture 4 - Operating Budget Part 1
Operating Budget
*Budget is the allocation of scarce resources of the company to maximize its usage in
attaining the short and long term goals of the company.
*Budget is part of planning.
*Operating Budget process:
a. Forecast the sales (Using forecasting techniques)
b. Estimate the ending inventory (independent estimation)
c. Estimate and Budget the production if manufacturing, purchase if merchandising
*Production - estimate the materials, labor and overhead
d. Estimate and Budget the operational costs (using the cost behavior)
*Selling / Marketing Expenses & Office / Administrative Expenses
e. Prepare the projected financial reports especially cash flows statement
*the last to prepare as part of the budget is the CASH BUDGET
*Budgeting Policy / Technique:
a. Zero Based Budgeting - From the scratch, we do not use our budget based on the previous year
b. Rolling Budget - "Carry Over" budget / Continuous
c. Static Budget - preparing one budget scenario
d. Flexible Budget - preparing budget considering various scenarios
*Flexible budget is the basis for preparing the standard rates to be used in computations
Cass 2 - Projected Purchases

October November December
Forecasted Sales 123,500.00 156,000.00 208,000.00
Beginning Inventory 38,000.00 48,000.00 64,000.00

105,000.0 136,000.0
Add: Net Purchases
0 0
Cost of Goods Available for Sale 143,000.00 184,000.00
Cost of Goods Sold 95,000.00 120,000.00 160,000.00
*Based on Cost: Selling Price = 30% of the Cost +

Cost
Lecture 4 - Operating Budget Part 2
Case 3 - Manufacturing Set-Up

Condensed Income Statement
100,000.0
Sales 100%
0
Less: Cost of Sales 65,000.00 65%
Gross Profit 35,000.00 35%
Administrative 10,000.00 10%
Selling 15,000.00 15%
Operating Income 10,000.00 10%
*In the vertical analysis of financial statements, in particular, the income

statement, the basis is the SALES.
Statement of Cost of Goods Sold

Beginning Materials Inventory 3,000.00
Add: Net Purchases 24,500.00
Cost of Materials Available for Use 27,500.00
Ending Materials Inventory 8,000.00
Cost of Materials Used 19,500.00
Direct Labor 26,000.00 40% of the total
manufacturing costs
Factory Overhead - Applied 19,500.00 75% of the direct labor costs
Total Manufacturing Costs 65,000.00
Beginning Work in Process Inventory 7,500.00
Cost of Goods Put Into Process 72,500.00
Ending Work in Process Inventory 2,500.00
Cost of Goods Manufactured 70,000.00 *Finished Products
Beginning Finished Goods Inventory 5,000.00
Cost of Goods Available for Sale 75,000.00
Ending Finished Goods Inventory 10,000.00
Cost of Goods Sold 65,000.00
Case 4 - Projected Statement of Cash Flows

3 Activities under the statement of cash flows
a. Operating Activities - accounts that can be found in the income statement
*Involves current assets and liabilities EXCEPT NOTES PAYABLE
Except:
1. Dividend Income - normally associated with long term investments - INVESTING ACTIVITY
2. Interest Income - depends on the source - long term receivable - INVESTING ACTIVITY
3. Interest Expense - depends on the source - financing accounts - FINANCING ACTIVITY
b. Investing Activities - activities involving LONG TERM ASSETS
c. Financing Activities - activities involving OBLIGATIONS serving as finances (short term and
long
term notes payable, long liabilities) and EQUITY TRANSACTIONS
Presentation Methods based on PAS 7 - Statement of Cash Flows
a. Operating Activities - either using direct or indirect method
b. Investing Activities - direct method only
c. Financing Activities - direct method only
Amount Classification
Operating
Customer sales receipts for P870,000 870,000.00
Activities
Purchased machinery and equipment for P125,000 cash. (125,000.00) Investing Activities
Operating
Settled income taxes of P110,000. (110,000.00)
Activities
Sold investment securities for P500,000. 500,000.00 Investing Activities
Financing
Paid dividends of P600,000. (Part of Equity Transactions) (600,000.00)
Activities
Operating
Received rentals of P105,000. 105,000.00
Activities
Financing
Issued 500 shares of common stock for P250,000. 250,000.00
Activities
Operating
Paid a sum of P100,000 due to suppliers and payroll to employees. (100,000.00)
Activities
Purchased real estate for P550,000 cash that was borrowed from a Financing
550,000.00
bank. Activities
Purchased real estate(land) for P550,000 cash that was borrowed from
(550,000.00) Investing Activities
a bank.
Financing
Paid P450,000 for treasury shares (450,000.00)
Activities
In Summary
Operating Activities 765,000.00
Investing Activities (175,000.00)
Financing Activities (250,000.00)
Net Cash Flows 340,000.00 During the period
Lecture 5 - Cost Variance Analysis Part 1
Materials Variance Analysis

*Cost - Actual > Budget = Unfavorable Difference / Variance
(POSITIVE)
*Cost - Actual < Budget = Favorable Difference / Variance
(NEGATIVE)
Accountability:
1. Purchasing Department - function: purchase - PRICE
VARIANCE
Variance = (Actual Price - Standard Price) x ACTUAL QUANTITY
PURCHASED
*High Price = Pricey / High Quality
*Low Price = Substandard / Low Quality
2. Production Department - function: use of materials - USAGE

VARIANCE
Variance = (Actual Usage - Standard Usage) x STANDARD
PRICE
Case 1 -
Materials
Variance
Total
Actual Standard Difference Multiplier
Variance
Materials Price
Purchasing
Variance 2.10 2.00 0.10 45,000.00 4,500.00
Department
(MPV)
Materials
Usage Production
45,000.00 50,000.00 (5,000.00) 2.00 (10,000.00)
Variance Department
(MUV)
(5,500.00)
*Standard / Budget Cost per Unit = P100,000 /
50,000 units of raw materials = P2 per unit
*Actual Price per unit = P2.10 per unit
*Standard Usage = 50,000 raw materials
*Actual Usage = 45,000 raw materials
*Usage = Purchase, when the problem is silent
*Variance analysis is normally observed when
the company is using standard costing.
At the time of purchase:

Purchases (45,000 x P2 - Standard Cost) 90,000.00
Materials Price Variance 4,500.00
Accounts Payable (45,000 x
94,500.00
P2.10 - actual cost)
At the time of use of materials:

Work in Process (45,000 x P2 - Standard Cost) 90,000.00
Raw Materials (45,000 x P2 -
90,000.00
Standard Cost)
*Unfavorable cost variance = addition to the

cost value
*Favorable cost variance = deduction to the
cost value
Case 2 - Materials Variance

Actual Standard Difference Multiplier Total Variance
Materials Price Variance (MPV) 3.45 3.60 (0.15) 1,600.00 (240.00)
Materials Usage Variance
1,600.00 1,450.00 150.00 3.60 540.00
(MUV)
Case 3 - Materials Variance

Actual Standard Difference Multiplier Total Variance
Materials Price Variance (MPV) 2.80 3.00 (0.20) 30,000.00 (6,000.00)
30,000.00 29,000.00 1,000.00 3.00 3,000.00
(MUV)

Case 4 - Multiple Materials
Variance Analysis
Materials Price Variance
Actual Standard Difference Multiplier Total
Echol 0.215 0.200 0.015 25,000.00 375.00
Protex 0.480 0.425 0.055 13,000.00 715.00
Benz 0.146 0.150 (0.004) 40,000.00 (160.00)
CT- 40 0.296 0.300 (0.004) 7,500.00 (30.00)
900.00

a. Mix Variance (Analysis on the
Input)
b. Yield Variance (Analysis on the
Output)
a. Mix Variance
Actual Standard Mix Difference Multiplier Total
Echol 26,600.00 28,140.00 (1,540.00) 0.200 (308.00)
Protex 12,880.00 14,070.00 (1,190.00) 0.425 (505.75)
Benz 37,800.00 35,175.00 2,625.00 0.150 393.75
CT- 40 7,140.00 7,035.00 105.00 0.300 31.50
84,420.00 84,420.00 (388.50)
*Standard Mix
Standard Ratio
Ratio
Echol 200.00 33% 2/6
Protex 100.00 17% 1/6
Benz 250.00 42% 2.5/6
CT- 40 50.00 8% 0.5/6
600.00 100%
b. Yield Variance
Standard Standard
Difference Multiplier Total
Mix Output
Echol 28,140.00 28,000.00 140.00 0.200 28.000
Protex 14,070.00 14,000.00 70.00 0.425 29.750
Benz 35,175.00 35,000.00 175.00 0.150 26.250
CT- 40 7,035.00 7,000.00 35.00 0.300 10.500
84,420.00 94.50
Total Materials Usage Variance (294.00)
Case 1 - Labor Variance

Labor Rate Variance = evaluation between the actual rate vs
standard rate - Human Resource Department
Labor Efficiency Variance = evaluation between the actual
productivity of the employee
vs. standard productivity of the employee - Production
Department
*Labor Rate Variance = (Actual Rate - Standard Rate) x

Actual Hours
*Labor Efficiency Variance = (Actual Hours - Standard Hours)
x Standard Rate
Actual Standard Variance Multipler Total

Labor Rate Variance 32.00 31.25 0.75 128.00 96.00
4 Way Variance
Labor Efficiency Variance 5 Way128.00
Variance 125.00 3.00 31.25 93.75
*Actual Rate = P4,096 / 128 Spending
Variable hours = P32 per hour
Variance Variable Spending Variance
*Standard Hours = 1 product = 0.5 hour; 250
Actual Overhead - Variableproduct = 125 Actual Overhead - Variable
hours
Budgeted Based on Actual - Variable Budgeted Based on Actual - Variable
Fixed Spending Variance FixedActual
Spending Variance Variance Multipler
Standard Total
Actual Overhead - Fixed Actual Overhead - Fixed 34,500.0
Labor Rate Variance 7.00 6.40 0.60 20,700.00
Budgeted Based on Actual - Fixed Budgeted Based on Actual - Fixed 0
Labor Efficiency Variance 34,500.00 35,000.00 (500.00) 6.40 (3,200.00)
*Actual Rate per Hour = P241,500
Variable / 34,500
Efficiency hours- BA-BS
Variance 7.00
Variable Efficiency Variance - BA-BS
Budgeted Based on Actual Budgeted Based on Actual
Budgeted Based on Standard Budgeted Based on Standard
*(Actual - Standard) x Variable Rate Actual
*(Actual Standard
- Standard) Variance
x Variable Rate Multipler Total
20,000.0
Labor Rate Variance 6.30 6.15 0.15 3,000.00
0
Volume Variance - BS-S
Labor Efficiency Variance Fixed Capacity21,000.00
20,000.00 Variance (1,000.00) 6.15 (6,150.00)
Budgeted
*Actual Rate per Hour Overhead
= P126,000 Based on
/ 20,000 Budgeted Overhead Based on 6.30
Standard Standard
Standard Overhead Normal Capacity
Actual Standard Variance Multipler Total
Labor Rate Variance 5.00 5.50 (0.50) 2,000.00 (1,000.00)
Labor Efficiency Variance 2,000.00 1,727.27 272.73 5.50 1,500.00
*Actual Rate per Hour = P10,000 / 2,000 hours 5.00
2 Way Variance - CONVO - ABSS 3 Way Variance - SVV - ABASS

Actual Overhead Controllable Variance - A-BS Spending Variance - A-BA
Actual Overhead Actual Overhead
Budgeted Overhead based on
Budgeted Based on Actual
Standard
Standard
Volume Variance - BS-S Variable Efficiency Variance - BA-BS
Overhead
Budgeted Overhead Based on
Budgeted Based on Actual
Standard
Standard Overhead Budgeted Based on Standard
*(Actual - Standard) x Variable Rate

Budgeted Overhead Based on
Standard
Standard Overhead
Case 1 - Fixed
Overhea Efficiency
d
Variance
Variance
Normal
Materials Actual Standard Variance Multiplier Total
Capacity
Materials
Standard
Price 125.00 120.00 5.00 10,000.00 50,000.00
Overhead
Variance
Materials *(Actual -
Usage 8,400.00 8,000.00 400.00 120.00 48,000.00 Standard) x
Variance Fixed Rate
98,000.00
Labor Actual Standard Variance Multiplier Total

Labor
Rate 62.00 60.00 2.00 19,000.00 38,000.00
Variance
Labor
19,000.0 -
Efficiency 20,000.00 60.00 -60,000.00
0 1,000.00
Variance
-22,000.00
Overhead Variance
2 Way Variance
Controllable Variance - ABS
Actual Variable Overhead 798,000.00
Actual Fixed Overhead 76,000.00 874,000.00
Budgeted Based on Standard Hours
Variable Overhead ( P40 x 20,000 hours
800,000.00
(2,000 units x 10 hours per unit))
Fixed Overhead based on NORMAL
60,000.00 860,000.00 14,000.00
CAPACITY

Variable Overhead ( P40 x 20,000 hours
800,000.00
(2,000 units x 10 hours per unit))
Fixed Overhead based on NORMAL
60,000.00 860,000.00
CAPACITY
Standard / Expectation
Variable Overhead ( P40 x 15,000 hours -
600,000.00
Standard / Budgeted)
Fixed Overhead based on NORMAL 200,000.0
60,000.00 660,000.00
CAPACITY 0
214,000.0
Net Overhead Variance 214,000.00
0
3 Way Variance
Spending Variance -
ABA
Actual Variable 798,000.0
Overhead 0
Actual Fixed Overhead 76,000.00 874,000.00
Budgeted Based on
Actual Hours
Variable Overhead 760,000.0
( P40 x 19,000 hours) 0
Fixed Overhead based 54,000.0
60,000.00 820,000.00
on NORMAL CAPACITY 0
Variable Efficiency
Variance
Budgeted Based on
Actual Hours
Variable Overhead 760,000.0
( P40 x 19,000 hours) 0
Fixed Overhead based
60,000.00 820,000.00
on NORMAL CAPACITY
Budgeted Based on
Standard Hours
Variable Overhead
( P40 x 20,000 hours 800,000.0
(2,000 units x 10 hours 0
per unit))
-
Fixed Overhead based
60,000.00 860,000.00 40,000.0
on NORMAL CAPACITY
0
14,000.0
0
*(Actual Hours - - (19,000 hours -

Standard Hours) x 40,000.0 20,000 hours) x
Variable Rate 0 P40 per hour

Variable Overhead ( P40 x 20,000 hours (2,000 units x
800,000.00
10 hours per unit))
Fixed Overhead based on NORMAL CAPACITY 60,000.00 860,000.00
Standard / Expectation
Variable Overhead ( P40 x 15,000 hours - Standard /
600,000.00
Budgeted)
Fixed Overhead based on NORMAL CAPACITY 60,000.00 660,000.00 200,000.00
Net Overhead Variance 214,000.00 214,000.00
Sales 4,600,000.00
Unadjusted Cost of Goods Sold 2,760,000.00
Net Materials Variance - Unfavorable 98,000.00 *Unfavorable -
added to the cost
*Favorable -
Net Labor Variance - Favorable -22,000.00
deducted to the cost
Net Overhead Variance - Unfavorable 214,000.00 290,000.00 3,050,000.00
Gross Profit 1,550,000.00
Selling Expenses 620,000.00
Administrative Expenses 200,000.00 820,000.00
Income Before Tax 730,000.00
Less: Income Taxes 285,000.00
*Overhead variance is not allocated when the

variance is deemed to be INSIGNIFICANT. When the
problem is silent.
*If the overhead variance is significant, then the
variance is allocated on the following:
a. Work In Process Inventory
b. Finished Goods Inventory
c. Cost of Goods Sold
Lecture 6 - Responsibility Accounting Part 1
Revenue Variance Analysis

Sales Price Variance = (Actual Price - Standard Price ) x
Actual Quantity Sold
Sales Volume Variance = (Actual Units Sold - Standard
Units Sold) x Standard Price
*If the variance is NEGATIVE = UNFAVORABLE -
LESSER INCOME
*If the variance is POSITIVE = FAVORABLE - HIGHER
INCOME
Multiplie
Sales Price Variance Actual Standard Variance Total
r
Zim 12.50 13.00 (0.50) 4,800.00 (2,400.00)
Zoom 10.00 10.00 - 5,300.00 -
(2,400.00)
Multiplie
Sales Volume Variance Actual Standard Variance Total
r
Zim 4,800.00 5,000.00 (200.00) 13.00 (2,600.00)
Zoom 5,300.00 5,000.00 300.00 10.00 3,000.00
400.00
*Sales Mix
Ratio
Multiplie
Sales Mix Variance Actual Standard Mix Variance Total
r
Zim 4,800.00 5,050.00 (250.00) 13.00 (3,250.00)
Zoom 5,300.00 5,050.00 250.00 10.00 2,500.00
10,100.00 10,100.00 (750.00)
*Sales Mix / Standard Mix based on the budgeted / standard

- 50:50

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FINANCIAL MANAGEMENT REVIEWER LECTURES

Lecture 1 - Cost Concept and Classification Part 1

Observations on Variable Cost:

Lecture 1 - Cost Concept and Classification Part 2

Cost Driver / No. of Hours

Cost Behavior Application No.

Units 150,000.00 200,000.00 250,000.00

Cost per Unit:

Cost Behavior Application No.

Total Variable Cost 25,000.00 50,000.00 100,000.00

Total Fixed Cost 10,000.00 10,000.00 10,000.00

Total Costs 35,000.00 60,000.00 110,000.00

Variable Cost 5.00 5.00 5.00

Fixed Cost 2.00 1.00 0.50

7.00 6.00 5.50

Lecture 1 - Cost Concept and Classification Part 3

Cost Concept and Classification

Cost Segregation Method

Shell Company: Using HIGH-LOW METHOD

October November December Classification

Property Taxes 12,000.0 12,000.00 12,000.00 FIXED COST

Machine Hours 1,200.00 700.00 950.00 Cost Driver

Variable Cost per Machine Total Cost (Dependent Variable - Y)

Variable Cost per Machine (P20,000 - P15,000)

Lecture 1 - Cost Concept and Classification Part 4

Equation: P18 per Machiner Hour x Machine

To project the January total cost

Lecture 1 - Cost Concept and Classification Part 5

Step 2: Compute for the TOTAL FIXED COST (constant in

Electricity Costs = P3.90625 per Machine Hour x Machine

Cost Driver Determinants:

Degree of Determination - how influential the

*Outliers are extreme data either low or high

Lecture 1 - Cost Concept and Classification Part 6

Substituting to equation 1 the value of b

Electricity Cost Equation = P3.60796 per

Lecture 2 - Variable and Absorption Costing Part 1

Case 1 - Absorption and Variable Costing

*Variable Costing - presentation of income statement based on COST BEHAVIOR

Absorption / Traditional Costing

Variable / Direct Costing / Contribution Margin

*Fixed Manufacturing Cost is

(P42 x 125,000 units

Cost per Unit - Fixed Manufacturing (P1,100,000 / 137,500

Absorption Costing Net Income 1,062,500.00

Case 2 - Absorption and Variable Costing

Unit Cost of Fixed Factory OH 1.20 (P60,000 / 50,000)

Absorption Net Income 437,000.00

Add: Beginning Inventory -

Less: Ending Inventory 12,000.00

Variable Net Income 425,000.00

Less: Operating Expenses

Lecture 2 - Variable and Absorption Costing Part 2

Absorption Net Income 36,984.00

Ending Inventory 460.00

Variable Costing Income

Less: Fixed Cost

b. Operation 1,840.00 6,440.00

Product Cost Per Unit:

Factory Overhead - Variable 1,150.00

Absoprtion Costing Income Statement

Lecture 2 - Variable and Absorption ACosting Part 3

Case 4: 2 year reconciliation