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Compre Day 2
Compre Day 2
REVIEW
2nd SEM 2023-2024
1. The following relationships pertain to activity and cost for
two different years for Smythe Company:
Direct labor hours 300,000 400,000
PROPRIETOR’S PERSPECTIVE
1. Out-of-Pocket
2. Noncash costs
Per Unit
Total
TYPE PER UNIT TOTAL
Costs as to FIXED Varies constant
Behavior VARIABLE constant Varies
Costs = Variable Costs & Fixed Costs
The term “cost” covers all costs & expenses
Operating activities are made within the relevant range
Profit = Sales – Costs
Profit = Sales – FC – VC
BASIC CM = Sales – VC
Profit = CM – FC
PRINCIPLES Margin of safety = Budgeted Sales – Breakeven Sales
MS – shows how much sales volume can be reduced
without sustaining losses
Increase in DL hours 100,000.00
Increase in Total Costs PHP 25,000.00
Variable Cost per hour PHP 0.25
F C = TC - VC
Pretest # 2 1st year 129,000 – (300,000 x .25)
PHP 54,000.00
STANDARD COSTING
Preparation & use of standard costs, their
comparisons w/ actual costs, and the analysis of
variances to their causes & points of incidence
PRODUCTION COST
VARIANCES
ACTUAL COSTS > STANDARD COSTS
Unfavorable
Addition to Standard COGS
Debit variance
Standard ACTUAL COSTS < STANDARD COSTS
Costing Favorable
Deduction from Standard COGS
Credit variance
b. P 31.75
c. P 41.00
d. P 42.00
1. In transfer pricing, if the selling division does not meet all
bona fide outside prices, then:
a. the buying division would accept the selling division’s
freedom.
Pretest b. the company should drop the market price approach and
# 9&10 use cost to control transfers.
PRIMARY OBJECTIVE:
- To evaluate performance by virtually transforming cost
SECONDARY OBJECTIVE
- To save on costs involved in producing or buying a
product by insourcing rather than outsourcing.
BASIS OF TRANSFER PRICE
- COST-BASED TRANSFER PRICE
- Variable Cost
- Full cost (Variable and fixed mftg and non-mftg
costs)
- Full absorption cost (Variable and fixed mftg costs)
- Cost-plus (Variable costs/ full costs/ full absorption
UPPER LIMIT
Maximum transfer price = Cost of buying from outside suppliers
Transfer Pricing Strictly speaking, upper limit shall be the higher amount of:
1. Cost of buying from outside suppliers, OR
2. Selling price to outside customers
LOWER LIMIT
Minimum transfer price = Variable cost per unit + Lost CM per unit
on outside sales