()) ReSA- The Review School of Accouectamoy, »« Mamagemerit Feuricee MS-01; COST BEHAVIOR ANALYSIS. OF sacrificed to attain some objective such as ring goods and services, When notified by @ term that defines the purpose, cost becomes ational (e.g ition cast; production cost; cost of goods sald), Cost BEHAVIOR Cost behavier is the relationship between cost and activity ~ as to how costs react to changes in an activity like production. As production increases, some costs remain the same (le., constant or fixed) while ne costs Inch é (i, variable). Consider the following te 7 TOTAL amount PER UNIT amount 4) FIXED Takao Decreases as production increases = 4it., inverse celationship) increases as production increases | | > vaatante } sf GGer aac relationship) Constant [PARED | Increases ieba proportionately (ve roral' | Decreases Tees prebon Gna WOO FIXEDCOST vs.‘ VARIABLE-CO Discretionary Fixed <——| . ——— > Tiushadabe Committed Fix } ¥ l —> Step Variable MIXEO cost Yea bx were: [¥] - the total costs (dependant v [a] - the total fixed costs (y-inter pt/vertical enis-intercesy (0) ble Cost per Unit (slope of the line) 4) or cost driver (independent variable [ox] - te totar variable costs COST BEHAVIOR ASSUMPTIONS and LIMITATIONS RELEVANT RANGE Assurnptio Relevant range refers to the range of activity. within which the cost behavior patterns are valié. Any level of activity outside this range may show a different cost behavicr pattern TIME Assumption he cost behavior patterhs identified are true only ove Ned period of tine. ‘Beyond this, the cost may showa different cost behavior pattern LINEARITY Assumption Cost Is assumed to manifest a linear relations! P elavant range despite it a how otherwise over the long run. , COST ESTIMATION: SEGREGATING VARIABLE & FIXED COSTS 1) HIGH-LOW POINTS Method The fixed and variable portions of the mixed costs are computed frorn two sampled date pout the highest and lowest points based an activity or cost ceiver SCATTERGRAPH (Scatter Diagram) Method All observed casts at various activity levels are plotted on Based on sey gnent, regression tine is then f the plotted points to repr funetior LEAST-SQUARES REGRESSION Method ast-squares method is a statistical technique that investigates the association between dependent ind independent variables. This method determines the fine Of best fit For a set of observations by minimizing the sum of the squared deviations between cost lite and the data points + If there is only one independent variable, the analysis is known 6s SIMPLE REGRESSION. + If the analysis involves mnultipie independent variables, its ktiown as MULTIPLE REGRESSION ather Cost Estimation Methoc A) Industrial Engineering Method - based on the relationship between Inputs and out physical for ¢; engineering estimates indicate what shoud B) Account Analysis Method . lassifi variable ba experience and judgment of id ot fe organizatic Conference Method ~ costs are classified based ar pan stm has purchasing, pro gineering, manufacturing, employee relations and so or Page 1 of 4 pagesRed - The Revew School of Cccowetancy COST BEHAVIOR ANALYSIS CORRELATION ANALYSIS CORRELATION ANALYSIS is used t variables The correlation between two arial + Ifthe points seem to form Ifthe points form a rendor COEFFICIENT OF CORRELA Variables. Its value ranges from If = -1.0, there TON (r) 1 is perfect /ave Fr = 0, no linear relationship MS-01 me f linear telaticeship between two or more we the strength © le » straight line, t att i n by drawing a scatter diagram igh Tarrelation, 3 low Correlation or no correlation at all neasures the relative strength of linear relationship between two ( to+ 1.0 ween X and ¥ + ifr = +1.0, there is perfact direct relationship between X and Y COEFFICIENT OF DETERMINATION (r2) is the proportion of the total variation in ¥ that Is accodlited for by the regression equation, regardless of whether the relationship between X and ¥ Is direct or inverse. It is 2 measure of ‘goodness of fit’ in the regression. The higher the r, the more confidence one can have in the estimated cost formula EXERCISES: COST BEHAVIOR ANALYSIS Variable Costs vs. Fixed Costs Adriel Company manufactures and sells 4 single product. A partially completed schedule of the company’s total and per unit below costs over a releval ange of 60 to 100 units produced each yéar is given we 11) 80 (Hit) 100 OTAL COSTS: (A) Variable costs P12 p pie ° = (8) Fixed costs 2 00. (C) Total costs P P 760 > 7 PER UNIT COSTS (D) Variable costs _f p> p> qc (E) Fixed costs P po? 2 REQUIREL Complete the schedule by writing the missing amounts 2. Which two (2) specific costs remain constant over the relevant range? 3. Which two (2) specific costs dre directiy with production? 4. Which specific cost is inversely related with production? 5) Express the cost formula hased on the line equation form 'Y = 0 + bX 6. Ifthe company produces 75 units, then how much is the ct total co: (Adapted: Managerial Accounting by Garrison & Noreen) High-Low Method The controlier of SUREDEAD: Hospital would like to come up with a cost formula that links emergency department cost to the number of patients admitted during a month. The emergency department's costs and the number of patients admitted during the past nine months follovr Month -lyfnber of Patients Emergency Department's Cost ‘Apr 18 P 15,600: May 19. P15,200/ , June 1 P 13,700 5 August 5 P 14,300 September P 13,200 Octobe 14 P 12,800" November Na 72,500. Dece 16 P 14,000 = REQUIRED: Using the high-low method, determine: 1. The variable cost per unit The gaqual fixed costs 3. The emergency department's monthly cast functiert 4) The department's estimated cost If 20 patients are expected to be ed next month. Adapted: Managerial A: farrisan & Noreen) Page 4 pagesKe DU. - the Review School of Cecowniamay, MS-O1 COST BEHAVIOR ANALYSTS: 3. Correlation Analysis re the linear relationship betheen the cist end the activity 1s the F 1 & Deviation d. Standard error e B) Looking at the following scatter diagrams, we can conclude that ' Diveck Units Units 4 ‘ Cost A Cost 8 [ Tadeo? @ Cost A-nill be easier to predict than cost 8, fe , Cost B will be easier to predict than cost A. © Gast Ais out-of-controt 4. Cost B has na variable component. : » C) Which of these correlation coefficients represents strangest relationship between ‘wo variables? % +050 & - 9.05 whet = 642 b =9.80 a +105 How ake, Well dayet Bk= me uate A8 (Adapted Managerial Accounting by Louderback) a ian Method st Comalaiy en Syd Company's total overhead costs ot various levels of activity. are presented below: ‘i Month Machine Hours Total Overhead Costs i March 500 970 | ede ‘Apa anor paste orbit core per an 2 Nene bs. May ‘600 4 P1089 June 7004 P 1,2087 _ aay Trade ofthe ovreaa cots aa tA nace hr ee any i ows) 49 Uy eS ~ ea 052 \ a. plies (Variable) #269 /4be k Soacaee: 7 24 Salaries (Fixed) 300 mae Lites (Mixed) 291 as ys at be Tora Past == ae on Re MRED: = 241-8 (4a:). How much of June's overhead cost of P 1,208 consisted of utilties cost 745% 295 2. Using high-low method, determine the cost function for u ae weet : S. Uing Mghyilmetnocl determine ine Sat uncle for ete the cose t for to il sum | 4 Using leastssquares method, determine the cost function for total averhoad caste ye aot S. What would be the fatal overhead costs if operating level (zat 200 machine hours? ho St AMM sli Gb us 114 (Adapted: Managerial Accounting by Garrison & Noreen) a) y= As +1 Pfr io easement 0 : = arena) ari April (400 hrs: 5) 95 45 1 dune (700 nes)" /\">g ‘Supplies (Variable) P 260 os Salaries (Fixed) 300 | Utilities (Mixed) 291. Total Overhead Costs Pest ‘SOLUTION GUIDE (requirement 4 — Least Squares method) Month Hours 0X) Total Costs (¥) xe x Mar P 970 4¢5 7/009 esoace Apr 400 P85t 240.4 EDs May 600 P 1,089 GSS. 405 366/008 Jun 700 P4208 - £45,400 490,088 SUM 2/4008 diye 284,480) (240, Wena + bee = bese Page 3 of 4 pages sa, Sree aire Tih salem & “ht = 40 4 27,2005) S0¢ Sd coc Oy Opa + 1,260 Cob Mees a ice ac i ° eea ReSU - the Review Schoot of Cccourtomeg MS-01 COST BEHAVIOR ANALYSIS WRAP-UP EXERCISES (TRUE OR FALSE; MULTIPLE-CHOICE) 4° Unibvaciable coats are coats that change in dkec.peoporin to changes Inthe thy Feel + Fase & Consider the following graphic representation of certain costs Costs (?) Units Which of the following caste are most likely sepresanted by the graph? “Total Fixed casts and total varfable costs Total fixed costs and unit variable costs Unit fixed costs and total variable costs ent Unit Fixed casts and unit variable costs j,yeacitutyts slektd Chit variable cost (b) is regarded as the 2 9 tn cost analysis using the line equation ¥ = &+ ¢ a, Dependent variable ¢ Slope of the line b. Independent variable d. Yaxis intercept 4 A company has developed a production cost equation for its lone praduct: Y = $0 + 5x, where X is based on the number of labor hours, Assurning 2 relevant-range of 10 to 20 labor hours, what is the estimated production cost at 26r0 (0) labor hour? a PS rele’ b. PSO c PSS aoe dunt d, An amount that cannot be determined from the givén information 2 21 Ord obese 5 If the coefficient of correlation’ (r) between two variables is + 0.95, how might 2 scatter diagram of ” * these variables appear? Be a. Random points Lemar, B.A regression line that slopes up to the eft & Aregression line that slopes up to the right d. A regression line that slopes down to the night ae Se 6 Ata\Gompaity 1s Interesben ithe relesnahig bateicen sales. (@ependenk variable) andl occurrence of C + © rain (independent variable). Using the proper formuta, the coefficient of correlation (r) is computed as 0.99. What conclusion about the sales and rain occurrence could one make? ‘2. An increase in sales causes an increase in rain occurrence. 1b An increase in sales causes a decrease in rain occurrence. G af An increase in rain occurrence causes a decrease in sales, 4d. An increase in rain occurrence causes an increase in sales. A 4) what i the appropriate range for the coetticient of determination (14)? (2 Ott G ttod B -ito+t 4 otointiniy (P% Using statistical normel relationships, the least-squares method. devises which of the following equations? Y= ne+ be . Lay = abe + De b. y=ne bix Say = ax bk c yrathe By =a + box d. sy =na + bx ‘xy = Bx + DEE 6 9 Which cost segregation technique gives the most mathematically precise cost estimate? @, Scatter-diagram method 7 b. Least-squares method | & High-low method = Calendar methoo TRUE ~ 10. Knowledge on cost behavior is critical to profit planning, particularly in cost-volume-profit analysis. Page 4 of 4 gS ge 4 of 4 pages ©RG - The Review School of llecowntancy, « HMamagemerct Sewices MS-02; COST-VOLUME-PROFIT ANALYSIS vais -~ |s useful for profit planning by way of a systematic analysis of the profit’s relationship. with watious costs and volute of salgSie nati tee, ane ‘T. Selling Price eS je ae Se {A coihsig eee ae eet ac ioar av Me eo caer a UNDERLYING CVP-ASSUMPTIONS. (Limitations) Relevant gm, fie red Wrenry aaseeiptions in HS Of ee fea assured CVE analysis Unless indicated otherwise, unit selling price is constant even if sales volume change: Tiveraovies da ot etnge significantly rom pened to period: Pudveton BAIN TEASE In cose of a multi-product company, sales mix is constant, abot product, prodyctog sectpglegy end market conions remain stable ‘TERMS USED IN CVP ANALYSIS ‘ Contribution Margin (Cl) ~ is the difference between sales and veriable cost. It is otherwise known {a5 marginal income, protit contribution, contribution to fixed cost or incremental contribution. # CM Ratio = CM = Sales = Unit CM's Unit Seling Price + CH Ratio = CM + A Sales NOTE: The sign A’ is used to mesn change or difference. Sroes Mir Reg ens Breek-Even Point (BEP) - a level of activity, in units (break-even Volume) or In pesos (break-even ‘sales), at which total revenues equel total costs, At the break-even point, there Is neither'a profit nor # teas, + BEP uns = Fixed Costs = CM per unit + BEP peso P 2/500), yoo. = Qube Jax Unit variable cost increases by P 2.50 (10% of P25) ‘on. cost Funct! + bx" Costs (old) = Casts (new) 1,500 = 2.5% 600 units 15,000 + 10X = 13,500. 12,5 Teo9 |e B10 [eo 2. PROVING: Contribution marain ratio x margin of safety ral tio = net profit rati 1 Contribution margin ratio = Contribution margin = Seles ‘Margin of safety + Sales Sales: The variable cost ratio is 60% while the profit ratio ls 8% where: Margin of safety ratio Net profit ratio = Profit 3, Basha’s break-even sales are P 528,000, REQUIRED: Determine the following Fixed Costs 21, 20% Sales cue Profit <> ne Morgin of Safety cue = S2am = Margit’ of Safety Ratio > paupe Page 2 of pagesont = t 2 ReSQ .. the Rerrew School of Cccowntancy, MS-02 COST-VOLUME-PROFIT ANALYSIS. a 4 Mahioon Company prcueen and ee Sun Bena YAN on hairs: Fong net moire cue iget : chairs Tables Total 1) ash, «1k Unit sates 60u Su 750 ace oe if Toss 00 P187.50 P 1,387.50 KO Yeriable Costs 050.00 112.50 __1.162.50 “ns Contribution Margin, «= 150.00 P 75.00 P 225.00 im wm Fixed Costs 90.90 sly Profit 735,00 REQUIRED: 1, Hove many units of ehgies should be sold next month to break-even? Ly vals 2, How many units of tables should be sold to earn a profit of P1207 @ unts (Adapted: Managerial Accounting by Garrison, et.3),) SOLUTION GUIDE Chairs Tables Contribution Margin (CM) per unit 2.50 P 5,00 Sales Mix (4:1 > 80%:20%) 80% 20% Weighted Average CM per unit: 5, Ms. Rita has recently opened the URE Fitness Gyr being offered exclusively for malnourished individuals. ‘The results for the gym’s first year of operations are presented as follows: Sales 280,000 Variable Costs (400,000) _ Contribution Margin P 150,000 Fixed Costs _(320,000)_ Profit P 30,000 Ms. Rita is unhappy about the results of his gym’s first year of operations. She observed that despite the high contribution margin, profit was stil Iow because of the high fixed costs. She concludes that, an increase in sales would not yield a satisfactory increase in profit yert ee ing HK REQUIRED: 1, Explain to Ms. Rita thet his conclusion fs not right by computing the operating 2. Ifsales increase by 10%, then how many percent would profit increase, ceteris paribus? (NOTE: determine the percentage 4 in profit by using the operating leverage factor.) (Aoapted: Managerial Accounting by Garrison, et.al.) WRAP-UP EXERCISES (TRUE OR FALSE: MULTIPLE-CHOICE) LAG Atthe break-even point, total contribution margin is a. Zero © Equal to total costs b. Equal to total fixed costs d Equal to total variable costs 4, hn increase in contribution margin ratio reduces the break-even point. {the tax rate lacceases, then the break-even paint aiso Increases, JH Ae increase in the income tax rate a. Raises the break-even point b. Lowers the break-even point C._ Increases sales required to earn a particular after-tax profit d. Decreases sales required to earn a particular after-tax profit BS. An increase in actual sales aiso increases the margin of safety. company that has 9 negative mgiaia.o safety necessarty operates aa loss D Under CVP analysis, which ofthe following is not assumed to be constant? ‘0, Unit variable cost © Unitseliing price b. Unit fixed cost d. Sales mix [BO Ab change in pre-tax profit can be quickly computed by multiplying a % change in peso sales by the 3. Sales mix Indifference point b. Margin of safety 4. Degree af operating leverage | (9 The operating leverage Factor is equal to Gross margin : profit after tax ¢ Cotibution margin + profit after tax D. Gross margin = profit before tox 4d, Contiibution margin ~ profit before tax {30 WF inventories ore expected to change, tne type of costing that provides the best information for breakeven analysts is ‘2. Job-order costing &. Joint costing D. Variable costing a, Atsorotion casting Page 3 of 3 pages7 Synge Azerion = SABIARLE . 1) ude HH Se Homer be ried * DTA oF a AP DerOVas a PREACT Som DAKa pu carte 9) Ako 7 Diced Gating’ €& RSA. The Kewiew Schook of Cecouritancy,« Momogemerit Suvicen MS-03: ABSORPTION & VARIABLE COSTING ABSORPTION COSTING - t. Absorption costing is alsa kar WARIABLECOSTING- is © costing metfiod i caaaEEEEEEEEEaEEEeee eed rate iptcr, sinl sedate atta ay ~ thee cont of 3 unit of product Lickaie BROW as a pened cost Variable costing is alsa called Aieck ents, PRODUCT vs. PERIOD COST A pooduch cost is an nvertoiabie cast that is hi ‘ ais Gurren income ta reduced only by the amount allocated to the saicunits, Consider the following allocation: Cenopucr cos cost» —7 UNSOLD UNITS > Asset (as Iaventory) ~ > SOLD UNITS 9 Expense (as Cost of Goods Sold) A pedlod.costis a ois) that is churned as pupence anpinst income, Houilicalion is necessary; Current income is reduced by the Juiamaunr of the period cost. Cremona ——— rn coat NO cuceotn ABSORPTION vs. VARIABLE COSTING Feedced ryt 1) RATIONALE eka a fee Supporters of variable costing argue that FFOH costs are incurred in order to have the espatity to Pproduee Unies. These costs are incurred whether br not production acturs. Thus, FFOH costs, having no future service potential, should be. Fen cart Supporters of alisountion costing believe tat all manufacturing costs — variable end fixed — are Iecessory fet producton to take ploce and Rene saauld.no be dhoin io etesminng aunt casts. ICT 2) INVENTORIES Since FFOH costs are simply’ expensed (\., period cast) under the variable costing, the peso amount of inventories under veriable costing \s always layer than the peso amount of inventories under absorption costing 2 PAC 3) ACCEPTABILITY Since treating FFOM as part of inventory cost Is cansistent with accounting standards, .aaly arable costag, which : Finis le actertalie onl: for infernal hee by tnanacement NOTE: Matching principle is an accounting principle that calls for the recognition of expense by Matching it with the related fevenue in the samme accoun'ing period. IC supports the tyeatinent of coat of. ‘Salas as expense only when related unite have been sold Tate a . eslahs Due oar Eanes 2) ee a FOIA Da capeble ath) 20" 4) INCOME STATEMENT ‘etary tolporen “eases cre 7 ‘An income statement prepared Under absarptine costing other casts, Production costs partaining ta sold units are ficst ecucted from sales £6 arrive at gross. profit, and then other costs are deducted to abtain net iicome ders nears Pte 7) tes sity Under vaniable costeg, the ioome statement distinguishes beiween variable and thes costs. All variable casts are first deducted from revenue (0 arrive et the contribution margin, and then fixed costs are deducted to obtain profit 5) INCOME COMPUTATION Nadlable costing irons ney diffe: Gam shccrption costing laccine becaiée of the diiticance inthe pieucL ot EEOU recogained as cuisuse dune period, This is actually caused py the diene tn the (ong fun, however, hoch methods would vind rhe came sosulte vince sales cannot (NOTE: the term “income” in many accounting Wteratures iberaity Used fo mean Brot") pncuetios’ come a oe be Fo +o «aes ole te Be ¥KeSA - the Review School of CecourTancy, MS-03 ° ABSORPTION & VARIABLE COSTING : RECONCILIATION OF INCOME UNDER ABSORPTION COSTING & VARIABLE COSTING Under variable costing, EEDH costs are fully expensed a6 incurred, white under absorptian costing, £&OH Consiéer the following patterns based on production and sales: = Pattern No. 1: When production equais sales, there is nochange in inventory. EEDH expensed tuner absorption costing ea uals FFOM expensed wader vasiable casting. PRODUCTION = SALES => Income (Absorption) = Income (Variable) = Pattern No, 2: When production is greater than sales, there is an increase in inventory. ‘asus under atsarpuon casting Lesa FFOH expensed under variable costing. Therefore, PRODUCTION > SALES Ree one Vee Income (Absorption) > Income Gehl ‘= Pattern No. 3: When production is less than sales, there is a decrease in inventory, EEG expensed Inder absorption costing is greater than FFOH expensed under variable costing PRODUCTION < SALES ‘=> Income (Absorption) < Income (Varfable) = Basic Formula: A Income = 4 Inventory x unit FFOH where: oat ‘A Inventory = Ending Inventory ~ Beginning Inventory A Inventory = Units Produced - Units Sold + Alternative Formula: Income, Absorption costing P xe Add: FFOM in beginning inventory 20 Total Pao, Less: FFOH in ending inventory (0x) Income, Variable costing, Pax ADVANTAGES OF USING VARIABLE COSTING - ‘Variable costing reports are simpler and more understandable. : The problems involved in allocating fixed costs are eliminated, 1s Data needed for break-even and cost-volume-proft analyses are readily available. " Variable costing Is more compatible with the standard cost accounting system f Variable costing reparts provide Useful nfarmation for pricing decisions and other operational problems encountered by management. yausy DISADVANTAGES OF USING VARIABLE COSTING g 1. Variable costing is not in accordance with GAAP; hence, itis not acceptable for external repojting. 2. Segregation of costs into fixed and variable might be difficult 3, The matching principle is violated by. using variable costing, which excludes FFOH from product costs and charges the same as period costs regarless of production and sales, P 4. With variable costing, inventory. costs and other related accounts, such 2s working capital, current ratio, and acid-test ratio are understated because of the exclusion of FFOH in the computation of product cost, EXERCISES: ABSORPTION and VARIABLE COSTING 1, Adtlel Company makes state-of-the-art toy car. Each toy car sells for P 1,000 each. Data for 2016's operations are as follows: Units: Varratle Costs Beginning Inventory 5 Direct Materials P 28,000 Production 80 Direct Labor 36,000 Ending Inventory 15 Factory Overhead 9,000. Selling and Administrative 4,000 Fixed Costs: Factory Overhead! 20,000 Selling and Administrative 2,000 REQUIRED 1) é 5 Determine the inventory, cost per unit uncer a ae A) Absorption costing 8B) Variable costing > . cs 2. Determine the cost of ending Inventory under ‘A) Absorption costing Frod mx 'B) Variable costing * «,.Page 2 0f 4 pages.ACE UG, Ere = AC VES AC Lue, Bralng < Bs RSM - the Renew Sthnol of CocomeToamng MS-03 ABSORPTION & VARIABLE COSTING 3. Prepare income statements under (A) absorption and (6) variable costing. 4. How much ts the difference in income between the costing methods? qu -2 090 - 2.60 5. What causes the difference in income between the costing methods? (Adapted: Managerial Accounting by Garrison) ot SOLUTLON.GUIDE te requirement 1 . (A) Absorption Costing ” (B) Variable Costing 7 Total Per Unit Per Unit DM 24 cao 200 2a he DL Keo 200 i * 5. WFOH yor yas’ FROH 250, - 0 Tota) Gree Fam se Pred: = Lunt 30 = SOLUTION GUIDE ta requirement. 3 ee 2. Oe ADAIEL COMPANY ver aoa Income Statement, for tha period of 2016 (A) ABSORPTION Costing (8) VARIABLE Costing Sales P -aC;ece Sales Be Ree Gost ofsales ___) Bike enter Be Bye eH ORS inighest revenues S GRIE Mac) | ighest posible prof) tage ete ite, “a Lowest costs _J “fy. ec Stanton re" (oackecs) rome ae aenee yeik NATURE OF e | __ ALTERNATIVES _ DESCRIPTION ms _DECISION GUIDELINES 1. MAKE or BUY | Stoukd a part “or product be | Chooke the option that hes the Towar 2 part/orodiuct anuactured | in-zourced) | or | cost. In most cases, fed costs are |~ "p Hid tekerine nS bel hte a ihc eluant : sribution snstauctions for all budoet sche: Deudyer Hanininy cojenda 40f4 pages SOR TS iKerzen — Sepane’se tenn ated means > condnore RSG ~The Korien School of Cccouorveg isa MS-05 BUDGETING 5 BF bee + 10,000- TO88F sec edie EXERCISES: BUDGETING ey 1. Monkey Company has budgeted sales at P 100,000 and expects a psafit-of 10% of the sales. Expenses are estimated as follows: selling = 10% of Sales; administrative = 15% of sales. Labor is expected to be 40% of the, total manufacturing costs. Factory overhead to be applied at 75% of direct labor costs. Inventories are to be as follows: i" @ rot» 40) = zeoct ae) January 2 December 31 ~ = 190, ateriats P 2,500 P7500 7 Work-in-process 8,000 3000 (0) weroue, Finished goods 5.000 19,900 CR) oe REQUIRED: Determine the following: 1 Cast of goods sod G2 2. Total manufacturing cast. 5/900 TH Factory overhead (7500 Materials purchases 24 £00 ae Sd+ 2958007 (Adapted: AicPA) 2. Past collections experienced by Fire, Ine. indleate 60% of the net sales billed in @ month are collected during tie month of sales, 30% are collected in the following mond, etd 10% are collected in the second following month, A record of monthly net seles of previous months is as follows ors | November [450,000 | March | P'300,000 Becemer | P-460,000.| 4... | Apni | 550,000 2016 | Janeway. 480,000 May | P 600,000 February | _P-420,000 | June] _P.700,900 ‘On Jarmary 1, 2016, the accounts cecevable balance showed > REQUIRED: Determine the Follow * Cash collections on accounts receivable during: 1, January 2016 10% 2, March 2016 4400 3, May 2016 S7F + Accounts recelvable balance at the end of ‘ A, February 2016 tig —S.° April 2016 42090 6. dune 2016.44 SOILUTION GUID: to.Ttem No. 2 Schedule of 2016 Monthly Collections F Months Net Sales | January | February | Me _Aprit May | june __November | P450,000 |_December | P-460,000 P 480,000 __|_P-420,000 —{_P.300,000 550,000 (Adapted: AICPA) june tr AR, beginning 295 60 + Net Sales P480,000 | P 420,000 | PS00,000) 550,000) P 600,000) P 70,000 =Galloctions | 41.500) | ( 447.600) | (_ 4% coop | ( c2zum) | (seedy | (otto | AR, ending gewdoo | sco @igaso |> cado00 | gardce 34 1 3. The sales maneger of Fresh Merchandising hae budgeted the following sales for the'4" quarter of 2016 = Gcober 123,500 J} d= qcoe8 November 156,000 | 40 =ttommd Yeoes: x Fo) December 208,000 1136 = wo ot 7 “Other! budgeted estimates are + All merchandises are to sell at its invoice cost plus 30% mark-up. + Beginning inventories vf each month are budgeted at 40% of that particular month's projecte ‘of goods sold. : REQUIRED: Deterttine the following: 1, Projected merchandise purchases for the month of Ortoher, (0/000 2. Projected merchandise purchases for the month of Navernber 3. qo Tae ‘Adapted: Managerial Accounting by Warred) coms 40 980 Pane 2'of4 pace!