If you need to quickly recap all the theory and you don't have the time to go through both the Study guides - grab these notes and do a quick revision before the exam hits.
This is also a very good start to give you a concise overview of all the topics discussed in Mac2601.
, Mac2601
Nature and Behaviour of Cost
Cost object, classification and behaviour Cost‐Volume‐Profit (CVP) Analysis
Any activity/unit used to measure cost Used to investigate change in profit that
Classified as: results from: Activity levels
Estimation Techniques & Linear Equation Per unit selling price
Direct cost Indirect cost The Linear Equation (pg. 21) Per unit variable cost
(Traceable) (Not Traceable) Variable cost per unit Total fixed cost
Manufacturing Cost Non‐Manufacturing Cost Total Cost Y=a+bx Activity level CVP Assumes: Selling price is constant,
(Used to make product) (Not part of making product) Total fixed cost * All costs are linear (can be divided into V & F
Direct Labour Marketing 1) High & Low method (Variable cost per unit) elements), V & F costs remain constant,
Direct Material Selling & distribution cost All Highest Cost – All Lowest Cost (Rand) Sales mix constant for all goods, Inventory levels
Direct Expenses Administrative cost Highest Activity – Lowest Activity (Level) don’t change & it only applies to relevant range
Manufacturing Overhead * Fixed costs are determined by: Upper & lower activity in which org. normally
= TC for activity Level – (VC p/u x related activity level.) operates.
Indirect
Indirect Indirect Other Manufacturing
Other
Indirect
Material
material Labour
Labour: Cost Manufacturing 2) Scatter diagram Contribution: (what’s left to cover FC (fixed cost))
(e.g. oil cost
(e.g.forOil for (e.g.
(Wages (Rent, Water & Lights) ‐ Not as accurate (blot TC on Y‐axis & Volume Contribution Ratio: % Sales available to
(e.g. Rent, = Sales – Total Variable Cost
wages for
machine)
Machine) for Admin) water & lights on the X‐axis), can use more than one value/cost Contribution Ratio: % Sales available
= Contribution/Sales x 100% to cover FC
admin)
Pg. 23 = Contribution/Sales
Breakeven x 100%
Point: Total contribution = Total FC
All costs can be: Prime (Direct) 3) Simple Regression Analysis Breakeven Point: Total contribution
In Units: Contribution/Sales x 100% = Total FC
Calc. In Units: Contribution/Sales x 100%
Or Conversion cost (Convert Raw materials: ‐ Used to determine the fixed & variable portions In Value: Breakeven Units x Selling Price per unit
Direct Cost + Manufacturing OH) of Manufacturing OH In Value:
ORBreakeven Units x Selling
Total FC/contribution Price per unit
ratio
OR Total FC/contribution ratio.
‐ Use different data points with a strong Breakeven graph on pg. 45
correlation (e.g. months.) Margin of Safety:
VC x Sum Volume
FC x Sum Calc. In Units: Total sales – Breakeven sales
Ratio: Margin of safety/ Total sales x 100%
Target Profit:
Calc. In Units: Fixed cost + Expected profit
Number of observations
Contribution per unit
Solve b by eliminating a & get the same In Value: Fixed cost + Expected profit
coefficient for both equations pg. 24‐26 Contribution ratio
NOTE: Fixed Cost – Stays the same
Semi‐Fixed – Increases in fixed increments/steps, e.g. R200, R400, R600.
Variable – Changes in direct proportion to production quantity – cost per unit.
Semi‐Variable – Fixed based cost, but variable cost added on top e.g. Phone line fixed,
but Airtime depends on calls made.
, Accounting For:
Material Overheads
Recording Procedures: Labour Actual OH: OH:
Actual Applied OH: BudgetedOH:
Budgeted OH:
Applied OH:
1) Perpetual Inventory Accounting System: Direct Labour Indirect Labour Actually incurred
Actually Allocated
Allocated toto Estimated
Estimated costcost
Used to record movements in material inventory Can be traced to Can’t trace cost, during year
incurred departments
departments budgeted
budgeted
(as it occurs) up to date. individual units treated as part of during the beginning
beginning ofof yr.
year
2) Physical inventory count: of products Manufacturing OH the year
Must be done from time‐to‐time Total Labour cost = Gross amount payable to employee + Employee benefits Under Applied Over Applied
(Confirms if perpetual inventory is correct) Departments’ part of Labour Cost control: Applied < Actual Applied > Actual
Accounting entries: General Ledger: ‐ HR: Appoint people & determine salaries See journals Pg. 103‐105 Study Guide 1
‐ Stock bought: Dr Inventory control acc. ‐ Timekeeping Department: Keeps record of time Overhead Recovery Rate:
& Cr Accounts payable/bank & work done (proper management vital Budgeted Manufacturing OH cost
‐ Raw material issued for production: e.g. time clock method (large firms), time clock cards, Estimated Production
Dr WIP/Manufacturing OH/ non‐manufacturing OH time sheets or Job cards. Appropriate capacity to use as denominator:
Cr Inventory control account. ‐ Salary/Payroll department: calc. & pay gross/net wages. ‐ Theoretical:Volume of activity under ideal conditions
When stock is returned just do the opposite ‐ Cost accounting department: Allocate labour cost, ‐ Practical:Volume of act. with unavoidable interruptions
Inventory planning & Control: compares what must be done (production units) ‐ Normal Average:Take fluctuations into account
to what was done & budgeted to actual labour costs. ‐ Budgeted:Capacity/ Activity level needed for new
Transaction Precautionary Speculative Payroll accounting: financial year
Motive: Motive: Motive: Allocation of OH:
Hold only enough Hold inv. future Hold more/less Inv. due to 2 Step procedure to Types of ‐ Blanket OH Rate: Account for all products with
Inv. for daily sales Demand/Supply price increase/decrease process time‐keeping data Remuneration: common allocation basis.
. ‐ Calc. & prepare ‐ Fixed Monthly Salary ‐ Departmental OH: Each department separate.
Inventory Holding (ordering) cost Formula: payroll ‐ Time wage (clock system) *Primary: Assigned directly to organisation’s
‐ How much inventory you order at a time ‐ Distribute costs to ‐ Piece wage system production (type), service (support functions)
. to minimise annual ordering/carry cost. Jobs, processes & department (per hour/job) non‐manufacturing departments (cost centres).
Annual usage (Demand) in units *Secondary: Re‐apportionment of a service dep.
VC of placing an order Cost accounting terms used in Payroll: OH cost. One department supports all other dep.
Overtime premium: Anything paid above normal rate or time
(Interdepartmental services)
Gross remuneration: Amount earned for hours worked, incl. all
allowances & overtime Budgeted Labour Recovery Rate:
Other Variable
Taxable income: Remainder after all deductions (e.g. provident fund) Total budgeted annual labour
Inventory holding Purch. Price Interest rate Cost to company: Gross remuneration + employer contributions
Total budgeted annual production hours
Cost p/a per unit Per unit (use only when Net Remuneration: take home pay
given) Labour related deductions: Pension, Provident fund contribution (not
more than 7.5% of pensionable remuneration), PAYE, UIF (1% of gross
income), Sundry deductions (medical aid, subscriptions etc.)
Role of Labour & level of technology used: Small batch, mass production
& continuous production process (accounting entries Pg.87)
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