Lecture 01 Managerial Accounting ❶ Introduction

Lecture_01_Part_01 Or scan this

We will assume that we work in Mostafa Restaurant , which prepares hamburgers (like McDonalds).
and serves meals to two segments of customers: adults & children (happy meal).

Until now, you can prepare financial statements for the whole restaurant (all segments) according to GAAP to
help the external users in making decisions. The official financial statements which are prepared at the end of
the fiscal year about events actually happened during the ended year are mandatory and not optional. The
information in financial statements must be precise and verifiable. All of these are done by financial accounting
What about internal users (management)?
The management needs private and confidential information to enable it to carry out its functions (planning,
control, & decision making).

Suppose that the manager of Mostafa's restaurant has a special order to supply 2,000 happy meals a day to a
school, but at a special price of $38 instead of $40 per meal, and the manager needs to make a decision whether
he accepts such a special order or not?

In such a situation, the manager needs to assess the special order by comparing the expected costs & revenues.
This should be done quickly so that the information is relevant to take the right decision at the right time. Of
course, there are many situations that require working freely without being bound by any standards for
providing specific-segment information. All of these are done by managerial accounting

You should note that there are 6 differences between financial & managerial accounting as shown below:

There is a third subsystem of accounting called Cost Accounting which is responsible for measuring, analysing,
and reporting financial and nonfinancial information relating to the costs of acquiring or using resources in an
organization to the financial accountant and the managerial accountant. (You will cover this course in the future isA).
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 Lecture 01 Managerial Accounting ❶ Introduction

All types of businesses, whether service, manufacturing, or merchandising, require

managerial accounting to help management in doing their activities. But its importance
is increasing in manufacturing business.

Functions in manufacturing company

Since the manufacturing function is the focus of these companies, functions can be categorized into

All activities that take place inside the factory building: All activities that take place outside the factory building:
The prime elements in manufacturing function are: The company cannot achieve its operational objective
1- Raw material without Selling & Administrative activities.
2- Production Labor (who operating machines)
The elements which convert raw material into FG are:
1- Production Labor Selling activities Administrative activities
Advertising, Marketing, Deliver Management activities
2- Machines & all other Manufacturing elements
product to customer, & customer
So, you can note that manufacturing function consist of 3 elements: service.
1- Material
= Operating activities = S&A
2- Labor
Three names of the same meaning.
3- Other Manufacturing elements (overhead).
Management activities

Planning Control Decision Making

Set objectives and plans (course of Compare actual performance with Choose the best alternative between
action) to achieve these objectives. the planned performance then competing alternatives
investigate for any deviation.
Managerial accounting role Managerial accounting role Managerial accounting role
CVP analysis (Cost-Volume-Profit) Provide feedback to alter plans. Identify alternatives and evaluate or
Budgeting (the formal expression for plans) asses them. Such as:
1- Drop or Retain segment.
2- Make or Buy component.
3- Accept or Reject special order.
4- Deal with a single constraint.
5- Sell or Process further.
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 Lecture 01 Managerial Accounting ❶ Introduction

To better understand these topics, it is necessary to start with the definition of cost and its various classifications, then
define the traditional income statement (in merchandising and manufacturing companies) and introduce a new format
for the income statement called contribution margin format which can be prepared at the level of different segments.

1- Introduction: already finished in the last two pages.

Before
2- Cost Concepts: will begin now and will take the next 2 lectures.
Midterm
exam 3- Income statement formats: in lecture 4 will introduce them.
4- CVP analysis: will cover it in 2 lectures (5 & 6).
After 5- Segmental Reporting: will cover it in lecture 8.
Midterm 6- Decision making: will cover it in 2 lectures (9 & 10).
exam 7- Budgeting: will cover it in 2 lectures (11 & 12).

1. Managerial accounting is primarily concerned with the organization as a whole rather than with segments of
the organization.
2. Managerial accounting places less emphasis on precision and more emphasis on timeliness and relevance than
financial accounting.
3. Managerial accounting is not governed by generally accepted accounting principles (GAAP).
4. Financial accounting and managerial accounting reports must be prepared in accordance with GAAP.
5. When carrying out planning activities, managers rely on feedback to ensure that the plan is carried out.
6. When carrying out their control activities, managers select a course of action and specify how the action will
be implemented.

1 2 3 4 5 6

1. Managerial accounting:
a. has its primary emphasis on the future.
b. is required by regulatory bodies such as the security market.
c. focuses on the organization as a whole, rather than on the organization's segments.
d. Responses a, b, and c are all correct.
2. Managerial accounting places considerable weight on:
a. generally accepted accounting principles.
b. the financial history of the entity.
c. ensuring that all transactions are properly recorded.
d. detailed segment reports about departments, products, and customers.
3. Which of the following is a characteristic of financial accounting?
a. not mandatory b. must follows GAAP
c. emphasis on relevance of data, rather than precision d. both A and C above
4. Which of the following is a characteristic of Managerial accounting?
a. not mandatory b. must follows GAAP
c. emphasis on relevance of data, rather than precision d. both A and C above
5. The plans of management are often expressed formally in:
a. financial statements. b. performance reports. c. budgets. d. ledgers.
6. The phase of accounting concerned with providing information to managers for use in planning and controlling
operations and in decision making is called:
a. planning. b. managerial accounting. c. financial accounting. d. controlling.

1 2 3 4 5 6

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 Lecture 01 Managerial Accounting ❷ Cost Concepts

Lecture_01_Part_02 Or scan this

Cost: is an optional sacrifice with economic resources to get benefits either at present or in the future.
Expense Asset

Cost object: is anything we want to measure its cost (e.g., a chair in a furniture factory).
Notice: cost objects include anything we want to measure its cost as
products, services, customers, departments …. etc.

We can classify the cost according 6 classifications:

❶ ❷ ❸
Time of measurement Relation with cost object For reporting purpose
① Budgeted ① Direct ① Inventoriable
② Actual ② Indirect ② Period

❹ ❺ ❻
Functional classification Cost behaviour Decision Making
① Manufacturing ① Fixed ① Relevant
② Nonmanufacturing ② Variable ② Irrelevant

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 Lecture 01 Managerial Accounting ❷ Cost Concepts

7. Products, services, departments, and customers may be cost objects.

8. The same cost may be direct for one cost object and indirect for another cost object.
9. Advertising is a manufacturing cost as long as it promotes specific products.
10. Direct labor is a part of both prime cost and conversion cost.
11. Conversion costs include all direct manufacturing costs.
12. Direct material cost combined with manufacturing overhead cost is known as conversion cost.
13. In a manufacturing firm, all costs are product costs.
14. A factory supervisor's salary would be classified as a direct cost of a unit of product.

7 8 9 10 11 12 13 14

7. Actual costs are:

a. the costs incurred b. budgeted costs c. estimated costs d. forecasted costs
8. Which of the following does NOT affect the direct/indirect classification of a cost?
a. the level of budgeted profit for the next year b. the materiality of the cost in question
c. available technology to gather information about the cost d. the design of the operation
9. All of the following are true EXCEPT that indirect costs:
a. may be included in prime costs b. are not easily traced to products or services
c. vary with the selection of the cost object d. may be included in manufacturing overhead
10. A manufacturing plant produces two product lines: football equipment and hockey equipment. Direct costs
for the football equipment line are the:
a. beverages provided daily in the plant break room
b. monthly lease payments for a specialized piece of equipment needed to manufacture the football helmet
c. salaries of the clerical staff that work in the company administrative offices
d. utilities paid for the manufacturing plant
11. The costs of direct materials are classified as:
Conversion cost Manufacturing cost Prime cost
a. Yes Yes Yes
b. No No No
c. Yes Yes No
d. No Yes Yes

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 Lecture 01 Managerial Accounting ❷ Cost Concepts

12. Which one of the following costs should NOT be considered an indirect cost of serving a particular customer
at a Dairy Queen fast food outlet?
a. the cost of the hamburger patty in the burger they ordered.
b. the wages of the employee who takes the customer's order.
c. the cost of heating and lighting the kitchen.
d. the salary of the outlet's manager.
13. An example of a nonmanufacturing cost is:
a. fire insurance on a factory building. b. salary of a factory supervisor.
c. direct materials. d. rent on a headquarters building.
14. Prime cost consists of direct materials combined with:
a. direct labor. b. manufacturing overhead. c. indirect materials. d. COGM.
15. The three basic elements of manufacturing cost are direct materials, direct labor, and:
a. COGM. b. cost of goods sold. c. work in process. d. manufacturing overhead.
16. The following costs were incurred in August:
Direct materials $
20,000
Direct labors $
18,000
Manufacturing overhead $
21,000
Selling cost $
16,000
Administrative cost $
21,000
Prime cost during the month totalled:
a. $39,000 b. $59,000 c. $96,000 d. $38,000
17. The following costs were incurred in August:
Direct materials $
37,000
Direct labors $
14,000
Manufacturing overhead $
38,000
Selling cost $
10,000
Administrative cost $
28,000
Conversion cost during the month totalled:
a. $127,000 b. $51,000 c. $52,000 d. $75,000
18. Direct materials used in production totalled 330,000. Direct labor was 415,000 and manufacturing overhead
$ $

was $220,000. What were the total manufacturing costs incurred for the month?
a. $530,000 b. $965,000 c. $745,000 d. $635,000
19. Consider the following costs incurred in a recent period:
Direct materials $
33,000
Direct labors $
28,000
Selling cost $
16,000
Manufacturing overhead $
34,000
Administrative cost $
21,000
What was the total amount of the period costs listed above for the period?
a. $78,000 b. $71,000 c. $46,000 d. $37,000
(20-22) The following costs were incurred in August:
Direct materials $
200,000
Direct labors $
150,000
Manufacturing overhead $
250,000
20. Prime cost during the month totalled:
a. $400,000 b. $350,000 c. $600,000 d. $750,000
21. Conversion cost during the month totalled:
a. $400,000 b. $350,000 c. $600,000 d. $750,000
22. Total manufacturing cost during the month totalled:
a. $400,000 b. $350,000 c. $600,000 d. $750,000
23. During the month of August, direct labor cost totalled 10,000 and direct labor cost was 20% of prime cost. If
$

total manufacturing costs during August were $65,000.

manufacturing overhead cost during the month totalled:
a. $50,000 b. $15,000 c. $35,000 d. $65,000
24. In August direct labor was 60% of conversion cost. If the manufacturing overhead for the month was $54,000
and the direct materials cost was $34,000, the direct labor cost was:
a. $36,000 b. $22,667 c. $51,000 d. $81,000
25. Mostafa Company's direct labor cost is 25 of its conversion cost. If the manufacturing overhead for the last
%

period was $45,000 and the direct materials cost was $25,000, the direct labor cost was:
a. $15,000 b. $60,000 c. $33,333 d. $20,000
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 Lecture 01 Managerial Accounting ❷ Cost Concepts

(26-30) Given the following cost items which pertain to a manufacturing company for the year ended
12/31/2019: (numbers are in thousands)
Direct Material used $
150
Plant equipment maintenance $
30
General administrative costs $
40
Notice: in case like this do the following:
Plant supervisory salaries $
20 1. highlight direct cost with blue line.
Direct labor cost $
80 2. Mark any other manufacturing cost with star.
Indirect material cost $
11 3. Mark the rest cost with dot.
Depreciation for plant building & equipment $
12
Depreciation for administrative building $
9
Sales commission $
15
Insurance on plant building & equipment $
3
Sales & administrative salaries $
45
26. The total of manufacturing overhead cost is:
a. $
116 b. $
85 c. $
76 d. $
121
27. The total of prime cost is:
a. $
266 b. $
226 c. $
230 d. $
271
28. The total of conversion cost is:
a. $
156 b. $
196 c. $
201 d. $
165
29. The total of inventoriable (product or manufacturing) cost is:
a. $
315 b. $
306 c. $
346 d. $
351
30. The total of period cost is:
a. $
120 b. $
109 c. $
112 d. $
129

7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30

16. Prime cost = DM + DL = 20,000 + 18,000 = 38,000

17. Conversion cost = DL + MOH = 14,000 + 38,000 = 52,000
18. TMC = DM + DL + MOH = 330,000 + 415,000 + 220,000 = 965,000
19. Period cost = Selling + Administrative = 16,000 + 21,000 = 37,000
20. Prime cost = DM + DL = 200,000 + 150,000 = 350,000
21. Conversion cost = DL + MOH = 150,000 + 250,000 = 400,000
22. TMC = DM + DL + MOH = 200,000 + 150,000 + 250,000 = 600,000
23.
20 100
⸪ 100
x Prime cost = 10,000 ⸫ Prime cost = 10,000 x
20
= 50,000

⸫ MOH = TMC - prime cost = 65,000 - 50,000 = 15,000

24. 25.
Conversion cost = Conversion cost =
DL + MOH DL + MOH
60% 40% 25% 75%
? 54,000 ? 45,000
60 25
⸫ DL = 54,000 ×
40
= 81,000 ⸫ DL = 45,000 ×
75
= 15,000

26. MOH (all stars) = DM + DL = 30 + 20 + 11 + 12 + 3 = 76

27. Prime cost (all blue) = DM + DL = 150 + 80 = 230
28. conversion cost = DL + MOH = 80 + 76 = 156
29. inventoriable (product or manufacturing) cost = DM + DL + MOH = 150 + 80 + 76 = 306
30. period cost (all dots) = 40 + 9 + 15 + 45 = 109

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Lecture 01 Managerial Accounting ❷ Cost Concepts

Difference between financial & managerial accounting

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 Lecture 10, 11 & 12 Managerial Accounting ❻ Budgeting

Lecture_02_Part_01 Or scan this

Cost behaviour refers to:

How will a cost react to changes in the level of activity?
Level of activity: it is A measure of output which can be expressed in: Number of units produced

(#), Direct Labor Hours (DLH), Machine Hours (MH) or some other basis. We'll assume it's X.
Assume that Mostafa Restaurant measure its activity by the number of Sandwiches produced (#).
Here, we called a sandwich as a unit.
Before explaining this classification, you should be able to differentiate between:

Total Cost (T) Cost Per Unit

The cost beard by the company at a certain level of activity. The cost beard by the company to produce only one unit.
Total cost
Total cost = Number of units × Cost per unit Cost per unit =
Number of units
Why is the managerial accountant concerned with cost behaviour?
Y
To predict total cost ( ) @ any level of activity ( X)

If Mostafa's restaurant becomes more popular, and it is expected that its production of sandwiches will increase next month:

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 Lecture 10, 11 & 12 Managerial Accounting ❻ Budgeting

What will happen to the rental cost if Mostafa wants to cook 700 sandwiches to meet the increased demand?
Here we are out of the relevant range of production (500 sandwiches), which prompts
Mostafa to rent another place to expand the restaurant and be able to meet the
increase in demand. Thus, the TFC will increase to settle into a new relevant range.

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Lecture 10, 11 & 12 Managerial Accounting ❻ Budgeting

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Lecture 10, 11 & 12 Managerial Accounting ❻ Budgeting

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 Lecture 10, 11 & 12 Managerial Accounting ❻ Budgeting

Lecture_02_Part_02 Or scan this

15. TFC vary with the level of production or sales volume.

16. A fixed cost is constant per unit of product.
17. Fixed cost per unit increases as activity decreases and decreases as activity increases.
18. When making decisions using fixed cost, the focus should be on total cost and not unit cost.
19. The VC per unit of a product should stay the same regardless level of production.
20. The cost of napkins put on each person's tray at a fast-food restaurant is a fixed cost.
21. When 50,000 units are produced the fixed cost is $10 per unit. Therefore, when 100,000 units are produced
(within the relevant range) fixed costs will remain at $10 per unit.

15 16 17 18 19 20 21

When 50,000 units are produced the fixed cost is $10 per unit (we should transfer it into total) = 50,000 x 10 = 500,000
When 100,000 units are produced TFC still 500,000, but FC per unit = $500,000 / 100,000 units = $5 per unit.
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 Lecture 10, 11 & 12 Managerial Accounting ❻ Budgeting

(31 - 37) Mostafa company has provided the following production and total cost data for four levels of monthly
production volume. “The company produces a single product.”
Number of units produced administrative cost Direct Material cost Manufacturing overhead cost
1,000 units $
15,000 $
3,000 7,000
$

2,000 units $
15,000 $
6,000 9,000
$

4,000 units $
15,000 $
12,000 $
13,000
6,000 units $
15,000 $
18,000 $
17,000
Assume that all these levels of activity are within the relevant range.
31. We should treat administrative cost as:
a. Variable cost. b. Fixed cost. c. Mixed cost. d. Sunk cost.
32. We should treat DM cost as:
a. Variable cost. b. Fixed cost. c. Mixed cost. d. Sunk cost.
33. We should treat MOH cost as:
a. Variable cost. b. Fixed cost. c. Mixed cost. d. Sunk cost.
34. Variable MOH per unit will be:
a. $
7/unit. b. $
4.5/unit. c. $
3.25/unit. d. 2/unit.
$

35. Total fixed MOH will be:

a. $
2,000 b. $
4,000 c. $
5,000 d. 6,000
$

36. Total cost equation will be:

a. $
15,000 b. $
2X c. $
20,000 + 5 X d. 15,000 + 2 X
$

37. The total cost when the production volume is 7,000 units will be:
a. $
15,000 b. $
14,000 c. $
29,000 d. 55,000
$

(38 – 45) You have the following data: (numbers are in thousands)
Main manufacturing Labor 29
$

Plant manager's Salary $

6
Office Depreciation $
8
Plant Electricity cost $
9
Sales Commissions 11
$

Plant Rent $
7
Raw materials 30 $

38. The total of Direct cost is:

a. $
79 b. $
29 c. $
59 d. $
81
39. The total of Indirect cost is:
a. $
22 b. $
29 c. $
75 d. $
79
40. The total of Variable cost is:
a. $
21 b. $
79 c. $
81 d. $
29
41. The total of Fixed cost is:
a. $
21 b. $
79 c. $
81 d. $
29
42. The total of inventoriable cost is:
a. $
59 b. $
81 c. $
22 d. $
19
43. The total of Period cost is:
a. $
59 b. $
81 c. $
22 d. $
19
44. The total of Prime cost is:
a. $
59 b. $
29 c. $
79 d. $
81
45. The total of Conversion cost is:
a. $
51 b. $
59 c. $
81 d. $
29
46. When 10,000 units are produced, variable costs are 3 per unit. Therefore, when 20,000 units are produced:
$

a. variable costs will total $60,000

b. variable costs will total $30,000
c. variable unit costs will increase to $6 per unit
d. variable unit costs will decrease to $1.5 per unit

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 Lecture 10, 11 & 12 Managerial Accounting ❻ Budgeting

47. When 10,000 units are produced, fixed costs are $7 per unit. Therefore, when 20,000 units are produced (within
the relevant range) fixed costs will:
a. increase to $14 per unit
b. remain at $7 per unit
c. decrease to $3.5 per unit
d. total $140,000
48. ABC Company is determining the cost behaviour of several items in order to budget for the upcoming year.
Past trends have indicated the following dollars were spent at three different levels of output:
10,000 units 12,000 units 15,000 units
Cost A $
25,000 $
29,000 $
35,000
Cost B 15,000 15,000 15,000
Cost C 15,000 18,000 22,500
In establishing a budget for 14,000 units, ABC should treat Costs A, B, and C, respectively, as:
a. mixed, fixed, and variable.
b. Variable, fixed, and variable.
c. mixed, mixed, and mixed.
d. Variable, mixed, and mixed
49. Mostafa Co. provides the following summary of its total budgeted production costs at three production levels:
1,000 units 1,500 units 2,000 units
Cost A $
1,420 $
2,130 $
2,840
Cost B 1,550 2,200 2,900
Cost C 1,000 1,000 1,000
Cost D 1,630 2,445 3,260
The cost behaviour of each of the Costs A through D, respectively, is:
a. mixed, variable, fixed, and variable.
b. Variable, mixed, fixed, and mixed.
c. Variable, fixed, fixed, and variable.
d. Variable, mixed, fixed, and variable.
50. Mostafa company estimates its total materials handling costs at two production levels as follows:
Cost Gallons
$
160,000 80,000
$
132,000 60,000
What is the estimated total cost for handling 75,000 gallons?
a. $
146,000 b. $
150,000 c. $
153,000 d. $
165,000 e. all answers are wrong.
51. Mariam company currently produces 1,000 units per month. The following per unit data apply for sales to
regular customers:
Direct materials $
20
Direct labor $
3
Variable overhead $
6
Fixed overhead $
10
Total manufacturing costs $
39
The plant has capacity for 3,000 units and is considering expanding production to 2,000 units. What is the total
cost of producing 2,000 units?
a. $
39,000 b. $
78,000 c. $
68,000 d. $
62,000 e. all answers are wrong.
52. ABC Manufacturing currently produces 1,000 bicycles per month. The following per unit data apply for sales
to regular customers:
Direct materials $
50
Direct manufacturing labor $
5
Variable manufacturing overhead $
14
Fixed manufacturing overhead $
10
Total manufacturing costs $
79
The plant has capacity for 3,000 bicycles and is considering expanding production to 2,000 bicycles. What is the
per unit cost of producing 2,000 bicycles?
a. $79 per unit b. $158 per unit c. $74 per unit d. $134 per unit

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 Lecture 10, 11 & 12 Managerial Accounting ❻ Budgeting

53. Yasser company has the following cost components for 100 units of product for the year:
Direct materials $
400
Direct labor $
200
Manufacturing overhead 400
$

Selling and administrative cost 300

$

All costs are variable except for 200 of manufacturing overhead and 200 of selling and administrative cost. The
$ $

total costs to produce and sell 110 units for the year are:
a. $
1,300 b. $
1,430 c. $
1,390 d. $
1,080
54. The following data pertain to activity and costs for two recent months:
October November
Activity level in units 5,000 U. 10,000 U.
Variable cost $
10,000 ?
Fixed cost $
30,000 ?
Mixed cost $
20,000 ?
Total cost $
60,000 $
75,000
Assuming that these activity levels are within the relevant range the mixed costs for November were:
a. $
40,000 b. $
35,000 c. $
25,000 d. $
20,000
55. ABC Manufacturing provided the following information for last month:
Sales $
12,000
Variable costs $
4,000
Fixed costs $
1,000
Operating income $
7,000
If sales double next month, what is the projected operating income?
a. $
14,000 b. $
15,000 c. $
18,000 d. 19,000
$

31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55

31. Total administrative cost is constant it is fixed cost. (b)

32. Total DM cost is changed.
But its per unit cost (3,000/1,000 = 6,000/2,000 = $3/U) is constant it is variable cost. (a)
33. Total MOH cost is changed & its per unit ( 7,000
/1,000 ≠ 9,000
/2,000) is changed. It is mixed cost. (c)
17,000 - 7,000 10,000
34. VC = = = $2/U (d)
6,000 - 1,000 5,000
35. TFC = 17,000 – (6,000 × 2) = $5,000 (c).
36. total cost equation: here we aggregate total fixed with total fixed & variable per unit with variable per unit.
TFC = 15,000 (administrative) + 5,000 (MOH) = $20,000 VC = $3/U (DM) + $2/U (MOH) = $5/U Y = 20,000 + 5 X
37. total cost @ 7,000 units = 20,000 + (5 × 7,000) = 55,000 (d)
Main manufacturing Labor $
29 V
Plant manager's Salary $
6 F
Office Depreciation $
8 F
Plant Electricity Expense $
9 V
Sales Commissions $
11 V
Plant Rent $
7 F
Raw materials $
30 V
38. The total of Direct cost = 29 + 30 = 59 39. The total of Indirect cost = 6 + 9 + 7 = 22
40. The total of Variable cost = 29 + 9 + 11 + 30 = 79 41. The total of Fixed cost = 6 + 8 + 7 = 21
42. The total of inventoriable cost = 59 + 22 = 81 43. The total of Period cost = 8 + 11 = 19
44. The total of Prime cost = 29 + 30 = 59 45. The total of Conversion cost = 29 + 22 = 51

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46. Total VC when 20,000 units are produced = $3 per unit × 20,000 units = $60,000
47. Total fixed cost = $7 per unit × 10,000 units = 70,000 and remain constant within the relevant range
So, when 20,000 units are produced:
$70,000
The fixed cost per unit = = $3.5 per unit
20,000 units
48.
10,000 units 12,000 units 15,000 units Total Per Unit Type
Cost A $
25,000 $
29,000 $
35,000 Δ Δ mixed
Cost B 15,000 15,000 15,000 Δ - Fixed
Cost C 15,000 18,000 22,500 Δ Δ = 1.5 Variable
49.
1,000 units 1,500 units 2,000 units Total Per Unit Type
Cost A $
1,420 $
2,130 $
2,840 Δ Δ = 1.42 Variable
Cost B 1,550 2,200 2,900 Δ Δ Mixed
Cost C 1,000 1,000 1,000 Δ - Fixed
Cost D 1,630 2,445 3,260 Δ Δ = 1.63 Variable
50.
Total cost is changed & its per unit (160,000/80,000 ≠ 132,000/60,000) is changed. It is mixed cost.
160,000 - 132,000 28,000
1- VC = = = $1.4/gallon
80,000 - 60,000 20,000
2- TFC = 160,000 – (80,000 × 1.4) = $48,000
Y = 48,000 + 1.4 X
the estimated total cost for handling 75,000 gallons = 48,000 + (1.4 × 75,000) = 48,000 + 105,000 = 153,000 (c)
51.
TFC = 1,000 units × $10/U = 10,000
VC = 20 (DM) + 3 (DL) + 6 (VOH) = $29/U
Y = 10,000 + 29 X
the total cost of producing 2,000 units = 10,000 + (29 × 2,000) = 10,000 + 58,000 = 68,000 (c).
52.
VC = 50 (DM) + 5 (DL) + 14 (VOH) = $69/U
TFC = 1,000 units × $10/U = 10,000
The per unit cost of producing 2,000 bicycles = 69 + (10,000 / 2,000) = 74
53.
V F
$
Direct materials 400
$
Direct labor 200
$
Manufacturing overhead 200 200
$
Selling and administrative cost 100 200
Total 900 400
900
VC = = $9 per unit
100
Y = 400 + 9 X
TC to produce 110 units = 400 + (9 x 110) = 1,390
54.
×2
Oct. 5,000 units Nov. 10,000 units
$
Variable cost 10,000 20,000
$
Fixed cost 30,000 30,000
$
Mixed cost 20,000 25,000
$
Total cost 60,000 75,000
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 Lecture 10, 11 & 12 Managerial Accounting ❻ Budgeting

55.
$
Sales 12,000 × 2 = 24,000
$
Variable costs 4,000 × 2 = (8,000)
$
Fixed costs 1,000 (1,000)
$
Operating income 7,000 15,000

The cost classification into direct / indirect applies to manufacturing costs only.
The cost classification into variable / fixed applies to all types of costs.

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