Transcript TM 661 Engineering Economics for Managers

IENG 216
Overhead
Accounting Equation
Owner Equity = Assets Liabilities
K -C orp C on so lid ated Balan ce
1997
1996
$22,300
46,800
54,200
$16,800
38,600
48,200
Total Current As sets
Other A ss ets
Land
Building
Equipment
$123,300
$103,600
100,000
85,400
78,400
100,000
94,600
85,600
Total A ss ets
$387,100
$383,800
$62,400
$55,600
5,000
$67,400
125,800
$193,200
20,000
$75,600
132,300
$207,900
100,000
93,900
100,000
75,900
$387,100
$383,800
Current A ssets
Cash
Accounts Receivable
Inventories
Current Liabilities
Accounts Payable
Notes
Total Current Liabilities
M ortgage
Total Liabilities
Owner's Equity
Paid In Capital
Retained Earnings
Total Liabilities &
Owner Equity
K -C orp In com e S tatem ent
Net Sales
Cos t of Goods Sold
$574,800
428,300
Gros s M argin
Operating Expens es
Sales Expens es
Depreciation Equip
Depreciation Bldg
Administrative
Utilities
Total Operating
Income from Operations
Taxes
Net Income
146,500
87,400
7,200
9,200
14,500
4,600
$122,900
23,600
5,600
$18,000
K-Corp Schedule of Cost of Goods Sold
Direct Materials
Invnetory, Dec. 1996
$48,200
Purchases
130,000
Cost of Direct materials
available for use
178,200
Inventory, Dec. 1997
54,200
Direct Materials Used
Direct Labor
Facotry Overhead:
Indirect labor
43,000
Indirect material
27,000
Utilities
5,000
Depreciation
16,200
Miscellaneous
4,000
Total Manufactirng Costs
$124,000
209,500
95,200
$428,700
K-Corp Income Statement
Net Sales
Less: Cost of Goods Sold
Finished Goods, Dec. 1996
Cost of Goods Manuf.
Cost of Goods Avail
for sale
Finished Goods, Dec. 1997
Cost of Goods Sold
Gross Margin
Operating Expenses
Sales Expenses
Depreciation Equip
Depreciation Bldg
Administrative
Utilities
Total Operating
Income from Operations
Taxes
Net Income
$574,800
$42,000
425,700
$467,700
39,400
428,300
146,500
87,400
7,200
9,200
14,500
4,600
$122,900
23,600
5,600
$18,000
Cost Behavior & Flexible
Budgeting
 Mixed costs are a function of fixed & variable
costs
Cost-Volume formula
Y = a + bx
where
Y = mixed cost to break up
x = a measure of activity (machine
hrs)
a = fixed cost component
b = variable rate per unit x
High-Low Method
Suppose we have the following:
F a c t o ry
D ire c t
M o n th
O v e rh e a d
La b o r H rs
A p ril
2750
250
M ay
2480
280
Ju n e
2690
230
J u ly
2330
190
A ugust
2610
210
Sep temb er
2910
270
High-Low Method
X
High
280
Low
190
Difference 90
Y
2480
2330
150
Variable rate = 150/90 = $1.67 per DLH
High-Low Method
Fixed Cost Portion
Total Mixed - Variable = $2,480 - 1.67(280)
= $2,012
High-Low Method
Fixed Cost Portion
Total Mixed - Variable = $2,480 - 1.67(280)
= $2,012
Total Mixed Cost = $2,012 + 1.67 X
Least Squares
Fa cto ry O v erh ea d v s D irect L a b o r H rs.
Overh ead
3000
2750
2500
2250
2000
150
200
250
L a o b r H rs
300
Least Squares
F a c to ry O v e rh e a d v s D ire c t L a b o r H rs
O v e rhe ad
3000
2750
2500
2250
2000
150
200
250
Labor H rs
Y = $1,900.27 + 3.054 x
300