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Managerial PT2

Total MOH / Total DL$ Plant-wide POHR based on DL$
Assembly Dept $ / MH in Assembly Assembly dept. allocation rate for departmental overhead
Packaging Dept $ / DL$ in Packaging Packaging Dept. allocation rate for departmental overhead
Plant wide MOH allocation Good for firms that make only one product. also good for products that use dept. MOH resources similarly
Departmental MOH Better for products that use dept. MOH resources differently
Activity based costing Best for firms that make a wide variety of products that consume MOH in different ways
Target Price Market sets the price
Cost-based pricing firm sets the price
Just in Time (JIT) manufacturing Demand pull, reduces costs to carry inventory, simplifies bookkeeping
JIT Management Good are made when a customer orders, little or no inventory on hand, Raw materials ordered when needed, flexible workforce, Goods shipped when completed, DL & MOH treated as Conversion Cost
Traditional manufacturing supply push
Conformance costs cost to ensure quality
Non-Conformance Cost cost of poor quality
Prevention cost conformance cost Before Production (Quality training & Machine inspections)
Appraisal costs conformance cost During Production (Materials inspections & Product testing)
Internal failure costs non-conformance cost on defects before sale (Scrapped units & rework of defective units)
External failure costs non-conformance cost on defects after sale (customer complaints, warranty repairs, lost sales)
Variable Cost per Unit & Total Fixed Cost Stays the same as the activity level Grows
Total Variable Cost Grows as the activity level grows
Fixed Cost per unit Drops as activity level grows
Mixed Cost Have both fixed and variable components
Relevant Range Range of activities where total FC and VC/unit remain constant. Approximately a straight line
Slope (High cost - low cost) / (High activity - low activity)
Total CM Total Sales - Total VC=
CM/Unit Sales/unit - VC/unit =
CM Ratio CM/unit by Sales/unit= CM / Sales=
Profit Sales - VC - FC =
Sales in units (Contribution Margin Approach) (FC + PRofit) / CM per Unit =
Sales in Dollars (Contribution Margin ratio approach) (FC + Profit) / CM per unit
Break Even (FC + 0) / CM per unit =
Break Even in Dollars break even units X sales price per unit
Margin of safety in units expected units - break even units =
Margin of safety in dollars safety units X sale price per unit =
Margin of safety ratio Margin of safety / Expected Units Sold =
Gross Profit Sales Revenue - COGS
Operating Income Gross Profit - Sales and Adminstraive
Variable Costing Used for internal decision making
Contribution Margin Sales - All VC
Operating Income CM - all FC
Manufacturing cost for Absorbing Costing Items sold X variable cost per unit + Fixed Overhead Cost =
Manufacturing cost for Variable Costing variable cost per unit
Ending inventory for Absorption costing Manufacturing cost per unit X leftover units
Ending inventory for Variable Costing Variable Cost per unit X leftover units
Variable Costing Operating income always remains the same under this costing method within the Income statement
Absorption and Variable Costing Whenever the # we make and sell are same, operating income will be same under
Absorption Costing Used for external reporting
Created by: normh80