Fixed costs that cannot be traced directly to a product line. Revenues and costs that differ from one alternative to another. Fixed costs that can be traced directly to a product line. A cost incurred in the past that cannot be changed by future decisions.
Classify the following adjusting entries as involving prepaid expenses , unearned revenues , accrued expenses , or accrued revenues . To record revenue earned that was previously received as cash in advance. In this lesson, you will learn about the concept of historical cost accounting, how it works and what the advantages of using this cost valuation method are.
Business Checking Accounts
Based on your recommendation, describe the qualitative factors that should be considered. 67. Product Line Decision. The following monthly segmented income statement is for Thirst Quench, a maker of soda, sports drink, and lemonade. Determine the highest cost management would be willing to accept to produce this product.
In other words, financial achievement does not reflect; instead, it goes unnoticed. Also, some cost centers may incur high expenditure and be subject to criticism in the organization, even though they might be contributing positively to productivity and profitability. Such instances lead to hampering the morale of the employees, which leads to loss of efficiency and productivity. As said earlier, cost centers have their own set of duties and responsibilities carefully planned and drafted by the management. Hence, there is an exact distribution of responsibilities, which leads to creating synergies between different departments.
Have only noncontrollable costs. If costs are not responsive to changes in activity level, then these costs can be best described as a.
The best measure of the performance of the manager of a profit center is the a. Rate of return on investment. Success in meeting budgeted goals for controllable costs. Amount of controllable margin generated by the profit center.
Define what is meant by a “make-or-buy” decision. Describe how differential analysis can be used to assist in making this type of decision. A method that allocates retained earnings joint costs based on a physical measure of output. Most companies have limited resources in areas such as labor hours, machine hours, facilities, and materials.
The break even analysis is important to business owners and managers in determining how many units are needed to cover fixed and variable expenses of the business. When the number of units exceeds 10,000, the company would be making a profit on the units sold. Note that the blue revenue line is greater than the yellow total costs line after 10,000 units are produced. Likewise, if the number of units is below 10,000, the company would be incurring a loss. From 0-9,999 units, the total costs line is above the revenue line. Jessica Porter works in both the jewelry department and the hosiery department of a retail store. Porter assists customers in both departments and arranges and stocks merchandise in both departments.
In this article, we define COGS and cost of sales, explain how to calculate cost of sales and answer some frequently asked questions. Contribution Margin is the difference between the price of a product and what it costs to make that accounting product. Sam’s Sodas is a soft drink manufacturer in the Seattle area. He is considering introducing a new soft drink, called Sam’s Silly Soda. He wants to know what kind of impact this new drink will have on the company’s finances.
How Is Cogs Used To Determine Gross Profit?
Only as the transfer of value takes place is revenue recognized. For a seller using the cash method, if cash is received prior to the delivery of goods, the cash is recorded as earnings.
- Behavioral principles included in performance evaluation include all of the following except that the a.
- Static reporting.
- If product line A is eliminated, total allocated fixed costs are assigned to the remaining product lines, and all variable and direct fixed costs for product line A will be eliminated.
- Allocated fixed costs are assigned to product lines based on sales.
- The department manager should focus on increasing revenues while maintaining the same cost levels.
A department has budgeted monthly manufacturing overhead cost of $90,000 plus $3 per direct labor hour. If a flexible budget report reflects $174,000 for total budgeted manufacturing cost for the month, the actual level of activity achieved during the month was a. 88,000 direct labor hours. 28,000 direct labor hours. 58,000 direct labor hours.
Although Grade B lumber appears to be unprofitable, elimination of Grade B lumber sales would not increase overall profit for Oregon Lumber. Grade B lumber contributes $60,000 to covering joint costs. Thus elimination of Grade B lumber sales would result in a decrease in overall profit of $60,000. The $62,500 in joint cost allocated to Grade B lumber would simply be reallocated to Grade A lumber. In this step, the process that limits production is identified. The management at Computers, Inc., has identified department 4, quality testing, as the bottleneck because assembled computers are backing up at department 4.
Variable cost per unit is the variable costs incurred to create a unit. Accrual accounting does not record revenues and expenses based on the exchange of cash, while the cash-basis method does. When the actual costs are compared with the budgeted costs, the profit centers are able to understand the difference and can apply the lessons in the next set of requirements.
Cost Centre Business
Explain why the loss shown for the Apple LLP account in the segmented income statement might be misleading to management. 35. Quality Sounds, Inc., makes speakers and headphones for high-end sound systems.
The production supervisor’s salary cost will remain regardless of the decision to outsource or to produce internally because the supervisor recently signed a long-term contract with the company. The factory lease has five years remaining and cannot be terminated before then. 48. Vail Door Company currently manufactures doors used in the production of custom homes. Management is interested in outsourcing production of the doors to a reputable manufacturing company that can supply the doors for $90 per unit.
The accrual journal entry to record the sale involves a debit to the accounts receivable account and a credit to sales revenue; if the sale is for cash, debit cash instead. The assets produced and sold or services rendered to generate revenue also generate related expenses. You won’t see a cost center and a profit center in a centralized company; since the control of the company is from a small team at the top. In a decentralized company where a unit of a business that generates revenues and incurs costs is called a the control and the responsibility are shared, you will be able to see the existence of cost and profit centers. S-A E 142 Edwards Corporation evaluates its managers based on return on investment . Kim Tilley and Sara Trane, managers of the electronics and housewares departments respectively, have recently suffered from declining profits in their departments. Over lunch, they discuss the problem, and how they could improve performance.
All costs are considered controllable by the department manager except for the supervisor's salary. Instructions Prepare a manufacturing overhead responsibility performance report for the first quarter. accounting If an investment center has a $15,000 controllable margin and $200,000 of sales, what average operating assets are needed to have a return on investment of 10%? $20,000. $25,000. $150,000. $200,000.
Most of the discussion centers around ways to increase sales. Near the end of the lunch period, however, Sara remarks that there are two components to consider, and that they have considered only one. She wonders whether there is some way to reduce investment, and by decreasing the denominator of the ROI fraction, to improve the final result. The company believes it will normally operate in a range of 2,000 to 4,000 machine hours per month. Instructions Prepare a flexible manufacturing overhead budget for the expected range of activity, using increments of 1,000 machine hours. The foreign subsidiary of a large corporation is a.
Get The Answers App
Mixed. Flexible. Variable.
Cost Vs General Accounting System
3 sales – finished goods. Cost of finished product sold reports on income statement as cost of goods sold; cost of products not sold is reported on balance sheet as ending finished goods inventory. Pneumatic received an offer from a one-time customer to purchase 5,000 compressors this coming quarter for $275 per unit. Pneumatic can produce up to 30,000 units a quarter, so the special order would not affect regular customer sales. Variable costs per unit will remain at $100. RadioCom received an offer from the Coast Guard Auxiliary to purchase 1,000 radios next month for $75 per unit. RadioCom can only produce up to 5,000 radios a month, so the special order would result in reduced sales to regular customers.
The manager has the power to incur the cost within a given time period. The cost has not exceeded the budget amount in the master budget. It is a variable cost, but it is uncontrollable if it is a fixed cost. It changes in magnitude in a flexible budget.
Its revenues are derived through its wholesale water and wastewater business, which is described below. The Company depletes its water assets that are being utilized on the basis of units produced (i.e., thousands of gallons sold) divided by the total volume of water adjudicated in the water decrees. Cash and cash equivalents include all highly liquid debt instruments with original maturities of three months or less. The Company’s cash equivalents are comprised entirely of money market funds maintained at a reputable financial institution. At various times during the fiscal year ended August 31, 2016, the Company’s main operating account exceeded federally insured limits. The Company has never suffered a loss due to such excess balance.
Revenue is recognized when earned and payment is assured; expenses are recognized when incurred and the revenue associated with the expense is recognized. Profit MarginsProfit Margin is a metric that the management, financial analysts, & investors use to measure the profitability of a business relative to its sales. It is determined as the ratio of Generated Profit Amount to the Generated Revenue Amount. Profit centers are the reasons for which business is run. Without profit centers, it would be impossible for a business to perpetuate.
Items Making Up Cost Of Goods Sold*merchandiser: Beginning Merch Inv + Cost Of Goods Purchased
Departmental gross profit. Which of the following is not a true statement? All costs are controllable at some level with a company.