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    Topic 1: Cost Concepts and Cost Behavior COGS Merchandising Company

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    Kez
    The document discusses cost concepts and cost behavior for merchandising and manufacturing companies. It provides examples of calculations for cost of goods sold for both types of companies. It also discusses activity based costing and the differences between variable and absorption costing methods. Specifically, it explains how product costs per unit and net income are calculated differently under variable versus absorption costing. Variable costing focuses on contribution margin and tracks variable costs, while absorption costing fully applies overhead to inventory and cost of goods sold.

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    Topic 1: Cost Concepts and Cost Behavior COGS Merchandising Company

    Uploaded by

    Kez
    166 views6 pages
    The document discusses cost concepts and cost behavior for merchandising and manufacturing companies. It provides examples of calculations for cost of goods sold for both types of companies. It also discusses activity based costing and the differences between variable and absorption costing methods. Specifically, it explains how product costs per unit and net income are calculated differently under variable versus absorption costing. Variable costing focuses on contribution margin and tracks variable costs, while absorption costing fully applies overhead to inventory and cost of goods sold.

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    The document discusses cost concepts and cost behavior for merchandising and manufacturing companies. It provides examples of calculations for cost of goods sold for both types of companies. It also discusses activity based costing and the differences between variable and absorption costing methods. Specifically, it explains how product costs per unit and net income are calculated differently under variable versus absorption costing. Variable costing focuses on contribution margin and tracks variable costs, while absorption costing fully applies overhead to inventory and cost of goods sold.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    166 views6 pages

    Topic 1: Cost Concepts and Cost Behavior COGS Merchandising Company

    Uploaded by

    Kez
    The document discusses cost concepts and cost behavior for merchandising and manufacturing companies. It provides examples of calculations for cost of goods sold for both types of companies. It also discusses activity based costing and the differences between variable and absorption costing methods. Specifically, it explains how product costs per unit and net income are calculated differently under variable versus absorption costing. Variable costing focuses on contribution margin and tracks variable costs, while absorption costing fully applies overhead to inventory and cost of goods sold.

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    Topic 1: Cost Concepts and Cost Behavior

    COGS Merchandising Company:


    Beginning Merchandise Inventory XX
    Plus: Total Purchases XX
    Cost of Goods Available for Sale XX
    Less: Ending Inventory (XX)
    COST OF GOODS SOLD XXX

    COGS Manufacturing Company

    Beginning Materials Inventory xx


    Add: Purchases xx
    Total Materials Available for Use xx
    Less: Ending Materials Inventory xx
    Materials Used in Production xx
    Add: Direct Labor xx
    Factory Overhead (Applied) xx
    Total Manufacturing Costs xx
    Add: Beginning Work-in Process xx
    Total Cost of Goods Placed in Process xx
    Less: Ending Work-in Process xx
    Total Cost of Goods Manufactured xx
    Add: Beginning Finished Goods xx
    Total Goods Available for Sale xx
    Less: Ending Finished Goods xx
    Cost of Goods Sold (normal) xx
    Add/Less: Underapplied/(Overapplied) FOH xx
    COST OF GOODS SOLD (actual) XXX

    Total Units Produced Unit Cost


    Direct Materials P 40,000 1,000 P 40
    Direct Labor 20,000 1,000 20
    Factory Overhead 17,000 1,000 17
    P77,000 P 77

    Manufacturing Cost P 77.00


    Gross Profit (40%) 30.80
    Selling Price P107.80
    HIGH-LOW METHOD
    a. Choosing the highest and lowest activity level within the relevant range y = a + bx
    Y2-Y1 Where,
    b. Slope of the line (variable cost/unit): b= y = total costs
    X2-X1 a = fixed costs
    where: x=activity level
    b = variable cost per unit
    Y2 = cost associated with the highest activity level
    Y1 = cost associated with the lowest activity level
    X2 = highest activity level
    X1 = lowest activity level
    Variable cost = change in cost / change in activity

    c. Y-intercept (fixed cost): a = y – bx


    where:
    a = monthly fixed cost
    Y = Total Cost (fixed + variable)
    b = variable cost per unit
    X = activity level

    LEAST SQUARE REGRESSION ANALYSIS – an averaging method that is an expansion of


    the expression y= a + bx
    a. Formula to get the variable cost per unit: b = n(∑xy) - (∑x)(∑y)
    n(∑x2) - (∑x)2

    ∑y - b(∑x)
    b. Formula to get the fixed cost: a = n

    Topic 2: Activity Based and Variable Costing


    1. Activity Based Costing:
      Total Budgeted Factory Overhead
    Single plant-wide factory overhead rate =
      Total Budgeted Plant-wide Allocation Base

    Activity   Budgeted Activity Cost


    =
    Rate   Activity Base

    Activity Base x Activity Rate = Activity Cost


    Summation of all Activity Costs = Total Factory Overhead Cost
    Total Factory Overhead Cost / Budgeted Units of Production = Factory Overhead Cost Per Unit
    2. Absorption and Variable Costing

    Variable Costing Absorption Costing


    Direct Materials Product Product
    Direct Labor
    Variable Overhead
    Fixed Overhead* Period
    Variable Selling and Administrative Period
    Fixed Selling and Administrative

    Computing Net Income:


     Variable Costing and the Contribution Format Income Statement
    Sales (the same with that of absorption costing) xx
    Less: Variable Costs:
    Variable cost of sale
    Beginning inventory (Units x Var. Production Costs) xx
    Costs of goods manufactured (Units Produced x xx
    Var. Production Costs/unit) _____________
    Total Goods Available for Sale xx
    Less: Ending Inventory (Units x Var. Prod. (xx)
    Costs/Unit) _____________ xx
    Variable Selling and Administrative (Units Sold x VS&A/unit) xx (xx)
    Contribution Margin xx
    Less: Fixed Costs
    Fixed Overhead xx
    Fixed Selling and Administrative xx ___ (xx)
    Operating Income xx

    Product Cost Per Unit – Variable Costing:


    Direct Materials P3.00
    Direct Labor 2.00
    Variable Overhead 1.00 P6.00
    Computing Net Income:
     Absorption Costing and the Functional Income Statement
    Sales (the same with that of variable costing) xx
    Less: Cost of Sales
    Beginning Inventory (Units x Production Costs/unit) xx
    Cost of Goods Manufactured (Units Produced x Prod. xx
    Costs/unit) _____________
    Total Goods Available for Sale xx
    Less: Ending Inventory (Units x Prod. Costs/unit) (xx) (xx)
    Gross Profit xx
    Less: Operating Expenses
    Variable Selling and Administrative (Units Sold x
    VS&A/unit) xx
    Fixed Selling and Administrative xx (xx)
    Operating Income xx

    Product Cost Per Unit – Absorption Costing:


    Direct Materials P3.00
    Direct Labor 2.00
    Variable Overhead 1.00
    Fixed Overhead (P2,000/1,000units) 2.00 P8.00

    Production = Sales
    Production is greater than Sales

    Production is less than Sales:


    Difference in Income:

    Reconciliation:

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