Appunti Managerial Accounting Zoni

OPERATING LEVERAGE

Operating leverage is a measure of how sensitive net operating income is to percentage changes in sales. It is a measure, at any given level of sales, of how a percentage change in sales volume will affect profits.

Contribution margin

Degree of operating leverage = Net operating income

To illustrate, let's revisit the contribution income statement for RBC.

$100,000 = 5

Degree of operating leverage = $20,000

OPERATING LEVERAGE - CHANGE IN PROFIT

Financial Statement Analysis and Managerial Accounting | Martina Marazzi

With an operating leverage of 5, if RBC increases its sales by 10%, net operating income would increase by 50%.

Percent increase in sales: 10%

Degree of operating leverage: 5.00

Percent increase in profits: 50%

STRUCTURING SALES COMMISSIONS

Companies generally compensate salespeople by paying them either a commission based on sales or a salary plus a sales commission. Commissions based on sales dollars can lead to lower profits in a company.

Example

Pipeline

Unlimited produce due tipi di tavole da surf, la XR7 e la Turbo. La XR7 viene venduta a $100 e genera un margine di contribuzione per unità di $25. La Turbo viene venduta a $150 e genera un margine di contribuzione per unità di $18. La forza vendita presso Pipeline Unlimited è compensata in base alle commissioni sulle vendite. Se facessi parte della forza vendita presso Pipeline, farei il possibile per vendere la Turbo anche se la XR7 genera un margine di contribuzione per unità più alto. Per eliminare questo tipo di conflitto, le commissioni possono essere basate sul margine di contribuzione anziché solo sul prezzo di vendita. Obiettivo di apprendimento 9: Calcolare il punto di pareggio per un'azienda multiprodotto e spiegare gli effetti dei cambiamenti nella composizione delle vendite sul margine di contribuzione e sul punto di pareggio. Finora, abbiamo operato con aziende che vendono solo un prodotto (non abbiamo mai avuto un esempio di un'azienda che vende due prodotti diversi), ma questo non è possibile. Di solito, anche nel caso di piccole aziende, i prodotti venduti sono diversi. - La composizione delle vendite è la relativaproportion in which a company's products are sold– Different products have different selling prices, cost structures, and contribution margins– When a company sells more than one product, breakeven analysis becomes more complex Let's assume RBC sells bikes and carts and that the sales mix between the two products remains the same. Bikes comprise 45% of RBC's total sales revenue and the carts comprise the remaining 55%. RBC provides the following information: - Expenses: $170,000 - Dollar sales break even: $352,697 - Contribution margin ratio: 48.2% Financial Statement Analysis and Managerial Accounting | Martina Marazzi JOB-ORDER COSTING: CALCULATING UNIT PRODUCT COSTS Now, we are approaching the cost classification that distinguishes between product cost and period cost since we start to think about how to cost a product and the next problem is understanding how to assign this cost to the product. We start to consider a product that is very visible, andun venduto e quindi questo costo diventa il valore dell'inventario, mentre i costi periodici vengono spesati immediatamente come spese nel periodo in cui si verificano. Il sistema di contabilità per ordini di lavoro prevede diversi passaggi per calcolare il costo di un ordine di lavoro. Questi passaggi includono: 1. Identificazione dei costi diretti: i costi diretti sono i costi che possono essere direttamente attribuiti a un ordine di lavoro specifico. Questi possono includere il costo dei materiali utilizzati, il costo della manodopera diretta impiegata per produrre l'ordine e altri costi direttamente associati all'ordine. 2. Assegnazione dei costi indiretti: i costi indiretti sono i costi che non possono essere direttamente attribuiti a un ordine di lavoro specifico. Questi possono includere i costi generali di fabbrica, come l'affitto dell'edificio di produzione, le utenze e le spese generali. Per assegnare questi costi agli ordini di lavoro, vengono utilizzati metodi di allocazione, come l'utilizzo di un tasso di costo indiretto o l'utilizzo di un sistema di costi standard. 3. Calcolo del costo totale dell'ordine di lavoro: una volta identificati e assegnati i costi diretti e indiretti, è possibile calcolare il costo totale dell'ordine di lavoro sommando tutti i costi associati all'ordine. 4. Registrazione dei costi: i costi identificati e calcolati vengono registrati nei registri contabili dell'azienda. Questo consente di tenere traccia dei costi associati a ciascun ordine di lavoro e di generare rapporti finanziari accurati. In conclusione, il sistema di contabilità per ordini di lavoro è un metodo utilizzato dalle aziende che producono molti prodotti diversi su ordinazione. Questo sistema consente di calcolare con precisione il costo di ciascun ordine di lavoro e di tenere traccia dei costi associati a ciascun ordine.

Period costs cannot be capitalized, and so they would go straight to the P/L. The first two costs that we associate easily with the product (the job order) are direct material and direct labor, but the main problem is related to the association of the manufacturing overhead to each individual job. These manufacturing overheads include indirect materials and indirect labor, which, as the word indirect says, cannot be traced directly (not observable), so there are a bunch of other items that need to be assigned to each individual job and we need to find a way to allocate these manufacturing overheads to each individual job.

Learning Objective 1: Compute a predetermined overhead rate

WHY USE AN ALLOCATION BASE?

An allocation base, such as direct labor hours, direct labor dollars, or machine hours, is used to assign manufacturing overhead to individual jobs.

We use an allocation base because:

1. It is impossible or difficult to trace overhead costs to particular jobs
2. Manufacturing overhead consists

of many different items ranging from the grease used in machines to the production manager’s salary.

Many types of manufacturing overhead costs are fixed even though output fluctuates during the period.

In order to be fair and associate a fair amount of overhead to the job, what we have to do is to aggregate and estimate all the manufacturing overhead over a significant amount of time (1 year) and then we predetermine the overhead rate.

This costing needs to be determined when the job is completed because most of the time the cost is used to determine the selling price, so the company needs to have all the elements.

MANUFACTURING OVERHEAD APPLICATION

The predetermined overhead rate (POHR) used to apply overhead to jobs is determined before the period begins:

Estimated total manufacturing overhead cost for the coming period

POHR= Estimated total units in the allocation base for the coming period

Ideally, the

Allocation base is a cost driver (cost driver means the items that makes or influences the total cost, what is driving the cost) that causes overhead, and we will see that in some cases the cost changes because of the volume, while in other cases the cost changes because of other reasons that are not volume related.

THE NEED FOR A PREDETERMINE OVERHEAD RATE

Predetermined overhead rates that rely upon estimated data are often used because:

1. Actual overhead for the period is not known until the end of the period, thus inhibiting the ability to estimate job costs during the period
2. Actual overhead costs can fluctuate seasonally, thus misleading decision makers

COMPUTING PREDETERMINED OVERHEAD RATES

The predetermined overhead rate is computed before the period begins using a four-step process:

1. Estimate the total amount of the allocation base (the denominator) that will be required for next period's estimated level of production.
2. Estimate the total fixed manufacturing overhead cost for

the coming period and the variable manufacturing overhead cost per unit of the allocation base.

3. Use the following equation to estimate the total amount of manufacturing overhead:

Y = a + bXY

Where:

• Y = The estimated total manufacturing overhead cost
• a = The estimated total fixed manufacturing overhead cost
• b = The estimated variable manufacturing overhead cost per unit of the allocation base
• X = The estimated total amount of the allocation base

4. Compute the predetermined overhead rate (by dividing the total amount of overhead by the number of estimated hours)

The predetermined overhead rate is complicated because, after estimating the total amount of overhead and the total amount of hours used as allocation based, the manufacturing overhead are fixed and variable. Consumption and electricity bills are variable overhead, in fact they are overhead, but they depend on the volume of activity, while depreciation of the facilities is still an overhead, but fixed.

Learning

Objective 2: Apply overhead cost to jobs using a predetermined overhead rate

OVERHEAD APPLICATION RATE

PearCo estimates that it will require 160,000 direct labor-hours to meet the coming period's estimated production level. In addition, the company estimates total fixed manufacturing overhead at $200,000, and variable manufacturing overhead costs of $2.75 per direct labor hour.

Y = a + bX

Y = $200,000 + ($2.75 per direct labor-hour × 160,000 direct labor hours)

Y = $200,000 + $440,000

Y = $640,000

$640,000 estimated total manufacturing overhead

POHR= ( )160,000 estimated direct labor hours DLH

POHR=$ 4.00 per direct labor-hour

RECORDING MANUFACTURING OVERHEAD

We use this type of information to cost the jobs, which means that the job has used 8 hours, so we multiply it by the rate and there we got the information.

This piece of information is available at the time when the job is completed, so the

company doesn’t need to wait until the end of the year to know how much the actual manufacturing overhead and actual direct labor hours used are, and so the company is able to determine the price for the customers.

Learning Objective 3: Compute the total cost and the unit product cost of a job using a plantwide predetermined overhead rate

CALCULATING TOTAL COST OF JOB AND UNIT PRODUCT COST

JOB-ORDER COSTING – A MANAGERIAL PERSPECTIVE

Inaccurately assigning manufacturing costs to jobs adversely influences planning and decisions made by managers.

1. Job-order costing systems can accurately trace direct materials and direct labor costs to jobs
2. Job-order costing systems often fail to accurately allocate the manufacturing overhead costs used during the production their respective jobs

Choosing an Allocation Base

Job-order costing systems often use allocation bases that do not reflect how jobs actually use overhead resources. The allocation base in the predetermined overhead rate must drive

The overhead cost to improve job cost accuracy. A cost driver is a factor that causes overhead costs. Many companies use a single predetermined plantwide overhead rate to allocate all manufacturing overhead costs to jobs based on their usage of direct-labor hours.

1. It is often overly simplistic and incorrect to assume that direct-labor hours is a company's only manufacturing overhead cost driver
2. If more than one overhead cost driver can be identified, job cost accuracy is improved by using multiple predetermined overhead rates

Learning Objective 4: Compute the total cost and the unit product cost of a job using multiple predetermined overhead rates

INFORMATION TO CALCULATE MULTIPLE PREDETERMINED OVERHEAD RATES

Dickson Company has two prod