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High Low Method VC=HC-LC HALA FU=TC~ (VCs Level of Activity) “can use vither High or Low Ve ania) OW Ov nde) pM DM+DL+0H raduct Cast DL ou TMC Admin ~ Selling + Finance + Other Twip = Period Cost WIPE, cogwy PM +DL FG.B, — ~Prime Cost coGas pL-on Jonversion Cost Admin ~ Selling = FC-(sy) Very), ere Operating Cost CONT RIBINTION MARGIN INCOME Sales Variable Cos Contribution Margin ised Cost Net Income BREAK-EVEN POINT DEP (unit) = ised Cost CM in unit BEP(peso) = Fixed Cost CM ratio? or BEP(unit) x selling price/unit “CM ratio ~ CP sates I the given profit is alles tas, ee mead toss up: stu) (C+ Target Profitt-tax rate Min Unit RS(peso) = FC "Target Proft/-tax rate ‘CM ratio ales in Peso BEPin pesos ‘or MOS im pesos = Net MR MOS Rati = Margin of Safety = Sales Saies can be octust 0° planned sales ABSORPTION COSTING Sales (Operating Expense)** Profit/Net Lacome Spradvet Cost DL, 24, OH Revie Cost Selig Adonin VARIA STING Sales ive Gross Profit, ProfitiNet Income *prodves Cost Db, DM, OH *perid Cast —Seiling A Adin wargin™ TARGET PROFIT RS(u) = BC+ Target Profit ‘Min Calt iC = Tayget Profitt Rs(peso) eM ratio before tax DOL ~ Cont Tneome before tax Insereretation: 4 Se income before ax sales x DOL A G6 sale ~ 96 income before tox DOr, MOS GALLS! + BLISALES)-ACEUAL SALES ihe RECONCILIATION Variable Not Income 41 Bin Inventory* x FOHMUni Absorption Net Income tif decrease, lens! if increnser al Absorption Net Ineome Add: Hixed OM, Beg Inv, Low: Fised OF, End In Variable Net Ineome Unit Fixed OF ~ Digerence in Income A in tnvensory Difference tn Income = A in productlon x Fixed OH/Unie a ow SS SALES BUDGE PRODUCTION BLDGET Cash Sales « Budgeted Seles, x edit Sales xx Ending Finished Goods. 3x Total Sales xe eg:nning Finished Goods) x) Budgeted Production x COLLECTION RLDGET Current Month Collection x ‘MATERIALS PURCHASED BUDGET Prior Month Collection xx. Brdgeted Production 3K ‘Total Collec ax { nurnber of materials need ax Materials Used xx MERCITANDISE PURCITASE BUDGET. Frid Materia’ Inventury x Budyeled Sele xx [Beg.nning Material Inventory) (xx Ending levertory xx Materials Purchases « (Reginning Inventory) (xx) Merchandise Purchase sx DIRECT LABOR BUDGET CASH BURGET Budgeted Production xx Bew-nning Cash Balance ax X direct labor hours needed Xx “ollecti deer labor r xx Cash Available xx Direst Labor Cost xx (Disbursement os) (Minimum Cash Balanes) xx) OPERATING EXPENSE BUDGET Excess'Dofivieney aX Rent ax Financing ax Advertisement xx Anvesting) Gs), Salas ax Ending Cash Balance x Wages x Otters xx ‘OVERUEAD BUDGE: Total Operating Expense x Budgeted Production wx X.OH RatesLnit ‘Overhead Cost Types Decision Criteria Make or buy | General Rule ‘Acceptor With excess eapse.ty ~ Geactal ale roject a special order | Without excess capacity = General rule + contribution margin of lost sale from regular onder Relevant: Cost of new equ pment, Salvage Valve of old equipment, difference in future operating east Retain or nelevant: HW/O8 ccquipment Retain of | Segment Margin = Positive = Resin Alocsted o> Net lows = Retared Eliminate [locates FC Net Loss = Eiinat inal Cost & Accumulate Depreciation of old Unprofitable eal Margin = Negative = Bliainate Segment or Product Segment Mangin ~ Sales — VC~ Avoidable FC Sell Incremental Reverue » Ineremettal Cost ~ Process Furtaer Immediately 
