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COMMERCE 2AB3 Everything you will ever need, just trust me (see description)

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Course
COMMERCE 2AB3 (COMMERCE2AB3)

Institution
McMaster University (mcmasteru)

I am pursuing my CPA therefore take extremely diligent accounting notes. These notes are 199 pages full of every in class note along with clarification from the teacher. I have compiled every formula needed for every chapter for your crib sheet, and I have posted & solved every single relevant prac...

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Uploaded on November 15, 2024
Number of pages 199
Written in 2023/2024
Type Class notes
Professor(s) A. mokhtar
Contains All classes

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Managerial Accounting - 2AB3
Course Overview:

Midterm Content →

Equations

Chapters 1, 2, 10 & 9
Average Cost aka Unit Mixed Cost aka Unit Cost:
Total Cost/Total Units =
[TFC + TVC] / Total Units =
UVC + UFC

Total Mixed Cost = TFC + TVC

,Prime Cost = DM + DL

Conversion Cost = MOH + DL

Total Manufacturing Costs = DM used + DL + MOH

DM Used = Beginning DM + Purchase of DM - Ending DM

Cost of Goods Manufactured (COGM) = Beginning WIP + [DM Used + DL + MOH] - Ending
WIP
[DM Used + DL + MOH] is the cost of manufacturing goods in the year
So it's basically what we started with, + what we made, - what we ended with

COGS = Beginning Fin. Goods + COGM - Ending Fin. Goods

Gross Margin (GM) = Sales - COGS
Operating Income (OI) = GM - Operation/Period Expenses

Total Cost = TFC + UVC * Quantity

Beginning WIP = Total manufacturing costs to account for - Manufacturing costs incurred

|OIAC - OIVC| = |Units Produced - Units Sold| * FMOH per unit
OR
|OI| = |Inventory| * FMOH per unit
OR
|OIAC - OIVC| = |Units in ending inventory - Units in beginning inventory| * FMOH per unit
OR
|OIAC - OIVC| = |FMOH in ending inventory - FMOH in beginning inventory|

In the above equations, FMOH per unit = Total FMOH/Total Units Produced

Chapter 3
1. TCM = Sales - TVC
2. OI = TCM - TFC
3. UCM = USP - UVC
4. Breakeven Quantity = FC / CMu (CM per unit)
5. Breakeven Sales = FC / CM ratio

, 6. CM Ratio = UCM / USP = [USP – UVC] / USP
7. Variable Cost % = UVC / USP
8. CM% + VC% = 1
9. QTI = [TFC + O.I.] / [USP – UVC] = [TFC + O.I.] / UCM
10. TIBT = TIAT / 1 – Tax Rate
11. MOS (in units) = Current Sales in units – Break Even Sales in units
12. MOS (in $ of sales) = Current Sales in $ - Break Even Sales in $
13. MOS ratio/% = MOS in $ / Current Sales in $
14. DOL = TCM / OI
15. % Change in Income = % Change in Sales x DOL
16. Revenue = TCM / CM%

14 & 15 often used together

TVC = Total variable costs
TCM = Total contribution margin
TFC = Total fixed costs
OI = Operating income
UCM = Unit contribution margin
USP = Unit selling price
UVC = Unit variable cost
CM = Contribution Margin
QTI = Quantity to Achieve a Target Income
TIBT = Target Income Before Tax
TIAT = Target Income After tax
QBE = Quantity to break even
$BE = Sales dollars to break even
QOI = Quantity to achieve some target operating income
$OI = Sales dollars to achieve some target operating income
OI = EBIT or Operating Income or Income before taxes
NI = Net Income or Income after taxes
CM% = Contribution margin percent or ratio
VC% = Variable cost percent or ratio
MOS = Margin of safety
DOL = Degree of operating leverage

Chapter 11
Replacing an asset algorithm (ignore time value of money):
Purchase cost of new equipment

, Less: Current Salvage Value of Old Equipment
Add: Opportunity cost of lost Terminal Salvage Value of old equipment (the salvage value if it
was instead sold at the end of its useful life)
Less: Terminal Salvage value of New Machine
Less: Savings in annual operating costs for the remaining life of the new machine

If the total is negative, then there is an overall savings, and if the total is positive, then there is an
overall cost of replacing the asset.

RELEVANT COSTS OF MAKING = Variable Cost of Manufacturing (DM, DL and VMOH) +
Any increase in specific fixed costs + Any Opportunity cost involved from utilizing the released
facilities.

RELEVANT COSTS OF BUYING = Purchase price + Any direct costs relating to purchasing.

If Relevant costs of making < relevant costs of buying, then make. Otherwise, outsource.

Product Mix & Constraints
1. Calculate the CM (Contribution Margin) per unit for each product.
a. CM per unit = Unit Selling Price - UVC
2. Calculate the CM per constraining factor e.g., CM per labour hour or machine hour for
each product.
a. CM per Constraining Factor = Unit Selling Price / Constraintper unit
3. Rank them from the highest CM per constraining factor to the lowest CM per
constraining factor.
4. Start producing the product that has the highest CM per constraining factor until you run
out of the input available or until you meet the maximum output possible for the product.
Keep repeating Step 4 until either the limiting input factor is exhausted or the demand is
exhausted.

Lecture Material:

Chapter 1 - Overview of Managerial Accounting
Learning Objectives
1. Explain how management accounting data are essential to the process of rational
operating and strategic decision making.

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