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:
