Chapter 7
Bhimani, Horngren, Datar and Rajan, Management and Cost Accounting, 6th edition © Pearson Education Limited 2015
Slide 7.2
Introduction
Bhimani, Horngren, Datar and Rajan, Management and Cost Accounting, 6th edition © Pearson Education Limited 2015
Slide 7.3
Learning objectives
Bhimani, Horngren, Datar and Rajan, Management and Cost Accounting, 6th edition © Pearson Education Limited 2015
Slide 7.4
Bhimani, Horngren, Datar and Rajan, Management and Cost Accounting, 6th edition © Pearson Education Limited 2015
Slide 7.5
Learning objective 1
Bhimani, Horngren, Datar and Rajan, Management and Cost Accounting, 6th edition © Pearson Education Limited 2015
Slide 7.6
Stock-costing methods
Bhimani, Horngren, Datar and Rajan, Management and Cost Accounting, 6th edition © Pearson Education Limited 2015
Slide 7.7
Bhimani, Horngren, Datar and Rajan, Management and Cost Accounting, 6th edition © Pearson Education Limited 2015
Slide 7.8
Bhimani, Horngren, Datar and Rajan, Management and Cost Accounting, 6th edition © Pearson Education Limited 2015
Slide 7.9
Variable costing
Bhimani, Horngren, Datar and Rajan, Management and Cost Accounting, 6th edition © Pearson Education Limited 2015
Slide 7.10
Payroll Work-in-progress
Variable stock
factory
labour
Variable overhead
Bhimani, Horngren, Datar and Rajan, Management and Cost Accounting, 6th edition © Pearson Education Limited 2015
Slide 7.11
Payroll Work-in-progress
Fixed stock
factory
labour
P&L Finished goods
Bhimani, Horngren, Datar and Rajan, Management and Cost Accounting, 6th edition © Pearson Education Limited 2015
Slide 7.12
Learning objective 2
Bhimani, Horngren, Datar and Rajan, Management and Cost Accounting, 6th edition © Pearson Education Limited 2015
Slide 7.13
Bhimani, Horngren, Datar and Rajan, Management and Cost Accounting, 6th edition © Pearson Education Limited 2015
Slide 7.14
Bhimani, Horngren, Datar and Rajan, Management and Cost Accounting, 6th edition © Pearson Education Limited 2015
Slide 7.16
Bhimani, Horngren, Datar and Rajan, Management and Cost Accounting, 6th edition © Pearson Education Limited 2015
Slide 7.17
Bhimani, Horngren, Datar and Rajan, Management and Cost Accounting, 6th edition © Pearson Education Limited 2015
Slide 7.18
Bhimani, Horngren, Datar and Rajan, Management and Cost Accounting, 6th edition © Pearson Education Limited 2015
Slide 7.19
Absorption
Revenues £568,000
Cost of goods sold 428,000
Volume variance (U) 9,000
Gross margin 131,000
Non-manufacturing costs 46,000
Operating profit £85,000
Bhimani, Horngren, Datar and Rajan, Management and Cost Accounting, 6th edition © Pearson Education Limited 2015
Slide 7.20
Bhimani, Horngren, Datar and Rajan, Management and Cost Accounting, 6th edition © Pearson Education Limited 2015
Slide 7.21
Variable
Revenues £568,000
Cost of goods sold 392,000
Variable non-manufacturing costs 16,000
Contribution margin 160,000
Fixed manufacturing costs 54,000
Fixed non-manufacturing costs 30,000
Operating profit £76,000
Bhimani, Horngren, Datar and Rajan, Management and Cost Accounting, 6th edition © Pearson Education Limited 2015
Slide 7.23
Learning objective 3
Bhimani, Horngren, Datar and Rajan, Management and Cost Accounting, 6th edition © Pearson Education Limited 2015
Slide 7.24
Operating profit
(absorption costing)
Bhimani, Horngren, Datar and Rajan, Management and Cost Accounting, 6th edition © Pearson Education Limited 2015
Slide 7.25
Operating profit
(absorption costing) (Continued)
Bhimani, Horngren, Datar and Rajan, Management and Cost Accounting, 6th edition © Pearson Education Limited 2015
Slide 7.26
Operating profit
(absorption costing) (Continued)
Bhimani, Horngren, Datar and Rajan, Management and Cost Accounting, 6th edition © Pearson Education Limited 2015
Slide 7.27
P&L accounts
(absorption costing)
Bhimani, Horngren, Datar and Rajan, Management and Cost Accounting, 6th edition © Pearson Education Limited 2015
Slide 7.28
Operating profit
(variable costing)
Bhimani, Horngren, Datar and Rajan, Management and Cost Accounting, 6th edition © Pearson Education Limited 2015
Slide 7.29
Operating profit
(variable costing) (Continued)
Operating profit
(variable costing) (Continued)
Bhimani, Horngren, Datar and Rajan, Management and Cost Accounting, 6th edition © Pearson Education Limited 2015
Slide 7.31
P&L accounts
(variable costing)
Bhimani, Horngren, Datar and Rajan, Management and Cost Accounting, 6th edition © Pearson Education Limited 2015
Slide 7.32
P&L accounts
(variable costing) (Continued)
Bhimani, Horngren, Datar and Rajan, Management and Cost Accounting, 6th edition © Pearson Education Limited 2015
Slide 7.33
Bhimani, Horngren, Datar and Rajan, Management and Cost Accounting, 6th edition © Pearson Education Limited 2015
Slide 7.34
Bhimani, Horngren, Datar and Rajan, Management and Cost Accounting, 6th edition © Pearson Education Limited 2015
Slide 7.35
Bhimani, Horngren, Datar and Rajan, Management and Cost Accounting, 6th edition © Pearson Education Limited 2015
Slide 7.37
Bhimani, Horngren, Datar and Rajan, Management and Cost Accounting, 6th edition © Pearson Education Limited 2015
Slide 7.38
Bhimani, Horngren, Datar and Rajan, Management and Cost Accounting, 6th edition © Pearson Education Limited 2015
Slide 7.39
Bhimani, Horngren, Datar and Rajan, Management and Cost Accounting, 6th edition © Pearson Education Limited 2015
Slide 7.40
Bhimani, Horngren, Datar and Rajan, Management and Cost Accounting, 6th edition © Pearson Education Limited 2015
Slide 7.41
Learning objective 4
Bhimani, Horngren, Datar and Rajan, Management and Cost Accounting, 6th edition © Pearson Education Limited 2015
Slide 7.42
Stock build-up
Bhimani, Horngren, Datar and Rajan, Management and Cost Accounting, 6th edition © Pearson Education Limited 2015
Slide 7.43
Bhimani, Horngren, Datar and Rajan, Management and Cost Accounting, 6th edition © Pearson Education Limited 2015
Slide 7.44
Bhimani, Horngren, Datar and Rajan, Management and Cost Accounting, 6th edition © Pearson Education Limited 2015
Slide 7.46
Bhimani, Horngren, Datar and Rajan, Management and Cost Accounting, 6th edition © Pearson Education Limited 2015
Slide 7.47
Bhimani, Horngren, Datar and Rajan, Management and Cost Accounting, 6th edition © Pearson Education Limited 2015
Slide 7.49
Bhimani, Horngren, Datar and Rajan, Management and Cost Accounting, 6th edition © Pearson Education Limited 2015
Slide 7.50
Bhimani, Horngren, Datar and Rajan, Management and Cost Accounting, 6th edition © Pearson Education Limited 2015
Slide 7.51
Bhimani, Horngren, Datar and Rajan, Management and Cost Accounting, 6th edition © Pearson Education Limited 2015
Slide 7.52
Bhimani, Horngren, Datar and Rajan, Management and Cost Accounting, 6th edition © Pearson Education Limited 2015
Slide 7.53
Bhimani, Horngren, Datar and Rajan, Management and Cost Accounting, 6th edition © Pearson Education Limited 2015
Slide 7.54
Learning objective 5
Bhimani, Horngren, Datar and Rajan, Management and Cost Accounting, 6th edition © Pearson Education Limited 2015
Slide 7.55
Alternative denominator-level
concepts
Bhimani, Horngren, Datar and Rajan, Management and Cost Accounting, 6th edition © Pearson Education Limited 2015
Slide 7.56
Alternative denominator-level
concepts (Continued)
n Theoretical capacity
n Practical capacity
n Normal capacity
n Master-budget capacity
Bhimani, Horngren, Datar and Rajan, Management and Cost Accounting, 6th edition © Pearson Education Limited 2015
Slide 7.57
Theoretical capacity
Bhimani, Horngren, Datar and Rajan, Management and Cost Accounting, 6th edition © Pearson Education Limited 2015
Slide 7.58
Practical capacity
Bhimani, Horngren, Datar and Rajan, Management and Cost Accounting, 6th edition © Pearson Education Limited 2015
Slide 7.59
Normal capacity
Bhimani, Horngren, Datar and Rajan, Management and Cost Accounting, 6th edition © Pearson Education Limited 2015
Slide 7.60
Master-budget capacity
Bhimani, Horngren, Datar and Rajan, Management and Cost Accounting, 6th edition © Pearson Education Limited 2015
Slide 7.61
Bhimani, Horngren, Datar and Rajan, Management and Cost Accounting, 6th edition © Pearson Education Limited 2015
Slide 7.62
Bhimani, Horngren, Datar and Rajan, Management and Cost Accounting, 6th edition © Pearson Education Limited 2015
Slide 7.63
Bhimani, Horngren, Datar and Rajan, Management and Cost Accounting, 6th edition © Pearson Education Limited 2015
Slide 7.64
n Theoretical 100%:
£200,000 ÷ 10,000 = £20.00/machine hour
n Practical 85%:
£200,000 ÷ 8,500 = £23.53/machine hour
n Normal 75%:
£200,000 ÷ 7,500 = £26.67/machine hour
n Master-budget 60%:
£200,000 ÷ 6,000 = £33.33/machine hour
Bhimani, Horngren, Datar and Rajan, Management and Cost Accounting, 6th edition © Pearson Education Limited 2015
Slide 7.65
Learning objective 6
Bhimani, Horngren, Datar and Rajan, Management and Cost Accounting, 6th edition © Pearson Education Limited 2015
Slide 7.66
Bhimani, Horngren, Datar and Rajan, Management and Cost Accounting, 6th edition © Pearson Education Limited 2015
Slide 7.67
Bhimani, Horngren, Datar and Rajan, Management and Cost Accounting, 6th edition © Pearson Education Limited 2015
Slide 7.68
n Normal capacity:
(7,500 – 8,400) × £26.67 = £24,003
n Master-budget capacity:
(6,000 – 8,400) × £33.33 = £79,992
n From learning objective 5, we remember that:
Theoretical = £20.00/machine hour
Practical = £23.53/machine hour
Normal = £26.67/machine hour
Master-budget = £33.33/machine hour
Bhimani, Horngren, Datar and Rajan, Management and Cost Accounting, 6th edition © Pearson Education Limited 2015
Slide 7.69
End of Chapter 7
Bhimani, Horngren, Datar and Rajan, Management and Cost Accounting, 6th edition © Pearson Education Limited 2015