Accounting Rules

1. CHAPTER 19: Standard Costs, Variable Costing Systems, Quality Costs and Joint Costs MBA 206 Maria Arlene (Bam) T. Disimulacion

2. STANDARD COST

11. VARIANCES Volume Budget Manufacturing Overhead (Fixed) Efficiency Spending Manufacturing Overhead (Variable) Efficiency (or quantity) Rate (or cost) Direct Labor Usage (or quantity) Price (or cost) Direct Material Variance #2 Variance #1 Input for Product

12. MATERIALS PRICE VARIANCE Entry #1 (page 589) Actual Price per unit $ 52,000 Less: Standard Price per unit 54,000 Materials Price Variance - (Favorable) $ 2,000

13. MATERIALS USAGE VARIANCE Entry #2 (page 589) Actual Quantity $ 48,000 Less: Standard Quantity 49,000 Materials Usage Variance - (Favorable) $ 1,000

15. VARIABLE COSTING and ABSORPTION COSTING

17. USES of VARIABLE COSTING and ABSORPTION COSTING Provide data on required selling price to cover all costs and provide reasonable income Provide data on the relationship between selling price, fixed costs and income Pricing Products Useful in determining historical costs for financial reporting to external users and for tax reporting Useful for management for various levels of management in their review of controllable and noncontrollable costs Controlling Costs ABSORPTION COSTING VARIABLE COSTING

18. USES of VARIABLE COSTING and ABSORPTION COSTING Helps with long-term decisions affecting fixed costs Determines the profit contribution by each segment (salesman, territory, product, customer distribution channel) Analyzing Market Segments Helps with long-term decisions affecting fixed costs Helps with short-term decisions when there are opportunities for additional income (but with additional variable costs) Planning Production ABSORPTION COSTING VARIABLE COSTING

19. QUALITY COSTS

25. JOINT COSTS

26. JOINT PRODUCTS When two or more commodities of significant value are produced from a single principal direct material Examples: Gasoline, kerosene, paraffin and other related commodities emerging from the processing of crude oil JOINT COSTS Costs incurred in the manufacture of joint products

27. SALES VALUE METHOD A method of allocating joint costs based on the assignment of costs to the various products in accordance with their relative sales values.

28. SALES VALUE METHOD Allocation of Joint Costs X = $30,000/90,000 x 63,000 $21,000 Y = $60,000/90,000 x 63,000 $42,000 $90,000 Total Sales Value $63,000 $60,000 $1.20/unit 50,000 units Y $30,000 $3/unit 10,000 units X Joint Costs Total Sales Value Sales Value/Unit Units Produced Joint Products

29. SALES VALUE METHOD Allocation of Joint Costs X = $30,000/90,000 x 63,000 $21,000 Y = $60,000/90,000 x 63,000 $42,000 Unit Cost X = $21,000/ 10,000 units $2.10 Y = $42,0000/ 50,000 units $0.84 $90,000 Total Sales Value $63,000 $60,000 $1.20/unit 50,000 units Y $30,000 $3/unit 10,000 units X Joint Costs Total Sales Value Sales Value/Unit Units Produced Joint Products

30. SALES VALUE METHOD $1,500 $600 Addl Mktg & Prod Costs (Costs Beyond the Split-Up) $3,000 Joint Costs (up to Split-Off) $5,900 $8,000 Total Sales Value $4,500 $6,000 $20/unit 300 units B $1,400 $2,000 $10/unit 200 units A TSV – Addl Costs Total Sales Value Sales Value/Unit Units Produced Joint Products

31. SALES VALUE METHOD Allocation of Joint Costs A = $1,400/5,900 x 3,000 $712 B = $4,500/5,900 x 3,000 $2,288 $1,500 $600 Addl Mktg & Prod Costs $3,000 Joint Costs (up to Split-Off) $5,900 $8,000 Total Sales Value $4,500 $6,000 $20/unit 300 units B $1,400 $2,000 $10/unit 200 units A TSV – Addl Costs Total Sales Value Sales Value/Unit Units Produced Joint Products

32. SALES VALUE METHOD Allocation of Joint Costs A = $1,400/5,900 x 3,000 $712 B = $4,500/5,900 x 3,000 $2,288 Unit Costs for each product A = $712/ 200 units $3.56 $600/ 200 units 3.00 Unit Cost $6.56 B = $2,288/300 units $7.63 $1,500/300 units 5.00 Unit Cost $12.63 $1,500 $600 Addl Mktg & Prod Costs $3,000 Joint Costs (up to Split-Off) $5,900 $8,000 Total Sales Value $4,500 $6,000 $20/unit 300 units B $1,400 $2,000 $10/unit 200 units A TSV – Addl Costs Total Sales Value Sales Value/Unit Units Produced Joint Products

33. THANK YOU Maria Arlene (Bam) T. Disimulacion