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Cost Accounting (1)

 MA Manufacturing company has the following total factory overhead
Activity level
DL-Hours 5,000 7,000
Total Factory Overhead Cost 120,000 144,000
The company has analyzed these costs at 5,000 hours level of activity
Indirect Mat. (Variable) 50,000
Rent (Fixed) 50,000
Maintenance (Mixed) 20,000
Total overhead costs 120,000
Required:
1. Estimate how much of the 144,000 factory overhead cost at the high level
of activity level consists of maintenance cost.
2. What total factory overhead costs would you expect the company to
incur at an activity level of 6,000 DL-Hours
 Cost Variable Cost Fixed Cost
Activity Level Respond Zero Response
Cost Per Unit Constant Varies
Cost In Total Varies Constant
 Production Level (AL) 1,000 2,000
(DM) … Variable Cost 15.20 15.20
(DL) … Variable Cost 30.50 30.50
(MOH) … Mixed Cost 54.10 37.40
Total= 1,000 × 54.10 = 54,100 Total= 2,000 × 37.40 = 74,800
High-Low Method … for Mixed Cost Only (Total Cost)
And here it’s per unit, so you need to calculate MOH in total

1- Var. Cost = Δ Cost / Δ Activity = ( 74,800 – 54,100 ) / ( 2,000 – 1,000 ) = 20.7 Per Unit
2- Fixed Cost = M = F + VL
74,800 = F + ( 20.7 × 2,000 ) …. F = 33,400
3- Cost Formula: M = 33,400 + 20.7 L

Total Manufacturing Cost = DM + DL + MOH

Total Variable Manufacturing Cost (Per Unit) = Var. DM + Var. DL + Var. MOH
= 15.20 + 30.50 + 20.70 = 66.4 Per Unit
PC 105,000 = DM + DL CC 77,000 = DL + MOH
Traditional income statement Schedule of COGM
Sales 235,000 1- DM
Beg. Mat
Less: Cost of Goods Sold (COGS)
+ Pur.
Beg. Inv. 31,000
- End. Mat.
+ COGM 140,000
DM Used 60,000
COGAS 171,000
- End. Inv. (26,000)
COGS 145,000 2- DL 45,000
Gross Margin (GM) 90,000 3- MOH 32,000
Less: Operating Expenses 1 + 2 + 3 = TMC 137,000
1- Selling Expenses Beg. WIP 27,000
2-Administrative Expenses - End. WIP (24,000)
Total OE =
Net Operating Income COGM 140,000
PC = DM + DL
105,000 =
CC = DL + MOH
77,000 =

TMC = (DM + DL + MOH) OR ( PC + MOH ) OR ( CC + DM)

137,000 = 77,000 + DM (60,000)

137,000 = 105,000 + MOH (32,000)

Note:
Mfg. Cost = Product Cost = Inventorial Cost

TMC = DM + DL + MOH … PC = DM + DL …. CC = DL + MOH

TMC = PC + MOH
TMC = DM + CC

All direct cost considered variable cost

But not all variable cost considered direct cost
Compute COGS:
Beg. FG ***
+ COGM *** (in Manufacturing company)
= COGAS ***
- End. FG (***)
= COGS ***

OR …. Purchases ( in merchandising company )

 Schedule of COGM

1- DM
Beg. Materials ***
+ Purchases ***
= Materials Available for Use ***
- End. Materials ( *** )
= DM Used in Production ***