Accounting for Decision Making - Topic 2 PDF

ACCOUNTING FOR DECISION MAKING TOPIC 2 San Pablo CEU University: Faculty of Economic Sciences Department of Business Management Professor: D. Ignacio García Gómez [email protected] TOPIC 2 THE COST ALLOCATION PROCESS: ANALYSIS OF THE COST OF PRODUCTION AND THE GENERATION OF FUNCTIONAL ACCOUNT 2 TOPIC 2 - CONTENT I. Cost allocation process 1. Identification 2. Classification 3. Location: the distribution key 4. Allocation: the unit of work II. Cost of materials III. The functional income account COST ALLOCATION PROCESS 1. Identification: from financial accounting 2. Classification: Direct vs Indirect, etc 3. Location: where? in Departments. Based on distribution keys 4. Allocation: to what? to Products. Based on units of work COST ALLOCATION PROCESS 1. Identification: from financial accounting Financial Cost Expense item Accounting Accounting Expenses Costs Purchase raw material ✓ ✓ Rappels raw material purchases ✓ ✓ Consumption raw material ✓ ✓ Purchases aux mat ✓ ✓ Repairs and maintenance ✓ ✓ Transport ✓ ✓ Insurance premiums ✓ ✓ Advertising and Public Relations ✓ ✓ Supplies: electricity ✓ ✓ Supplies: phone ✓ ✓ Income Taxes ✓ Other taxes: Property ✓ ✓ Wages salaries ✓ ✓ Social Security ✓ ✓ Depreciation ✓ ✓ Are additional adjustments required? Fixed assets impairment ✓ 1. Period Inventory impairment ✓ Inventory loss ✓ 2. GAAP constraints (depreciation: useful life) Interest expense ✓ ✓ COST ALLOCATION PROCESS 2. Classification: Direct vs Indirect, etc Cost relationship with relationship with Expense item Accounting cost carriers level of activity Costs ¿Significant? Direct Indirect Fixed Variable Purchase raw material ✓ ✓ ✓ Rappels raw material purchases ✓ ✓ ✓ Consumption raw material ✓ ✓ ✓ Purchases aux mat ✓ ✓ ✓ Repairs and maintenance ✓ ✓ ✓ Transport ✓ No Insurance premiums ✓ ✓ ✓ Advertising and Public Relations ✓ ✓ ✓ Supplies: electricity ✓ ✓ ✓ ✓ ✓ Supplies: phone ✓ ✓ ✓ Income Taxes Other taxes: Property ✓ ✓ ✓ Important note: Wages salaries ✓ ✓ ✓ ✓ ✓ Social Security ✓ ✓ ✓ ✓ ✓ Cost classification requires certain level of judgement for every specific business Depreciation ✓ ✓ ✓ case. Fixed assets impairment Inventory impairment Not all responses are applicable for all cases. Inventory loss Interest expense ✓ ✓ ✓ D.C. I.C. COST ALLOCATION PROCESS 3. Location: where? in Departments. Based on distribution keys D.C. PRODUCTS Direct Labor Direct Material Process1 IL workshop managers Process 2 Main centers Rivets Process 3 I.C. Insurance premiums? Depreciation Energy Indirect Labor consumption? etc I.L. Production Manager? ADMINISTRATION MAINTENANCE Auxiliary centers COMMON: CLEANING SHARE COST ALLOCATION PROCESS 3. Location: where? in Departments. Based on distribution keys (CONTD.) COST CENTERS DISTRIBUTION KEY – Indirect cost accumulation centers (cost carriers) – Tool that will allows the distribution of indirect costs, – Real divisions of the company common to several carriers, among them. – Group homogeneous costs REQUIREMENTS: – Distribution key drives level of activity – REPRESENTATIVENESS (causality criterion) CLASSIFICATION – OPERABILITY (economic criterion) – MAIN: Work on product (purchases, sales, all – MEASURABILITY (hh, hm, m², m³...) production) – AUXILIARY: They work for other centers (maintenance, cleaning, personnel, accounting, quality control, etc.) – MIXED: They are, simultaneously, auxiliary and main COST ALLOCATION PROCESS 3. Location: where? in Departments. Based on distribution keys (CONTD.) Departments (illustrative) Cleaning Mats Distribution INDIRECT COST DISTRIBUTION TABLE Costs Procurement Production (Aux) Quality (Aux) Admin Sales HHRR Warehouse Total Key Purchase raw material ✓ Not an indirect cost Rappels raw material purchases ✓ Not an indirect cost Consumption raw material ✓ Not an indirect cost Purchases aux mat ✓ 90% 10% 100% Repairs and maintenance ✓ 70% 10% 10% 10% 100% m2 Transport ✓ Not significant Insurance premiums (buildings) ✓ 10% 30% 10% 10% 10% 30% 100% m2 Advertising and Public Relations ✓ 100% 100% Supplies: electricity ✓ 5% 50% 5% 5% 5% 30% 100% KW/h installed Supplies: phone ✓ 30% 60% 10% 100% # phones Income Taxes Not a cost Other taxes: Property ✓ 10% 30% 10% 10% 10% 30% 100% m2 Wages salaries (INDIRECT ONLY) ✓ 10% 40% 5% 5% 5% 20% 5% 10% 100% Hours worked Social Security (INDIRECT ONLY) ✓ 10% 40% 5% 5% 5% 20% 5% 10% 100% Hours worked Depreciation Building ✓ 10% 30% 10% 10% 10% 30% 100% m2 Depreciation Machinery ✓ 100% 100% Fixed assets impairment Not a cost Inventory impairment & loss Not a cost Interest expense ✓ 100% 100% Total cost. Primary distribution 0 0 0 0 0 0 0 0 Secondary distribution Aux. Dpt 1 + Cleaning / 4 + Cleaning / 4 - Cleaning + Cleaning / 4 + Cleaning / 4 + (Quality + Cleaning / 4)/ + (Quality + - Quality - Secondary distribution Aux. Dpt 2 2 Cleaning / 4)/ 2 Cleaning / 4 Secondary distribution Aux. Dpt 3… Total cost Secondary Distribution 0 0 0 Empty Empty 0 0 0 0 COST ALLOCATION PROCESS 3. Location: where? in Departments. Based on distribution keys (CONTD.) PRODUCTS PROCESS 1 PROCESS 2 Main Centers PROCESS 3 1st Distrb 2nd Distrb ADMINISTRATION MAINTENANCE Auxiliary Centers CLEANING COST ALLOCATION PROCESS 4. Allocation: to what? to Products. Based on units of work GEN. MANUF. COSTS (DC) ALLOCATION (DIRECT) PROCESS 1 IMPUTATION (U. Of W.) PRODUCTS (IC) (DC) Main costs PROCESS 2 (IC) (DC) PROCESS 3 (IC) COMMON, DISTRIBUTE (WORK UNIT) COST ALLOCATION PROCESS 4. Allocation: to what? to Products. Based on units of work Departments (illustrative) Cleaning Quality Mats INDIRECT COST DISTRIBUTION TABLE Procurement Production (Aux) (Aux) Admin Sales HHRR Warehouse Total Total cost. Primary distribution 0 0 0 0 0 0 0 0 Total cost Secondary Distribution 50.000 70.000 Empty Empty 8.000 15.000 18.000 6.000 167.000 Unit of work (examples) Kgs purchased MACH / HOURS Revenue € MAN / HOURS Kgs used Unit of work amount 900.000 5.000 2.500.000 5.000 850.000 Cost / unit of work (Euros/unit) 0,1 14,0 Empty Empty To P/L 0,006 3,6 0,007 Units of work - % Kgs purchased MACH / HOURS Revenue € MAN / HOURS Kgs used Product A 30% 20% 35% 50% 35% Product B 45% 60% 25% 40% 40% Product C 25% 20% 40% 10% 25% 100% 100% 100% 100% 100% Units of work - units Kgs purchased MACH / HOURS Revenue € MAN / HOURS Kgs used Product A 270.000 1.000 875.000 2.500 297.500 Product B 405.000 3.000 625.000 2.000 340.000 Product C 225.000 1.000 1.000.000 500 212.500 900.000 5.000 2.500.000 5.000 850.000 Cleaning Quality Mats Allocated indirect cost Procurement Production (Aux) (Aux) Admin Sales HHRR Warehouse TOTAL Product A 15.000 14.000 5.250 9.000 2.100 45.350 Product B 22.500 42.000 3.750 7.200 2.400 77.850 Product C 12.500 14.000 6.000 1.800 1.500 35.800 50.000 70.000 15.000 18.000 6.000 159.000 COST OF MATERIALS Cost of entry and cost of departure: Gross purchases Purchase or acquisition price - Returns s/c - Rappels s/c COST - Discounts s/c pp Cost of RAW MATS. OF = NET PURCHASES purchases DEPARTURE Cost of Procurement Dept. Other acquisition cost Purchase costs: FROM Insurance, transp… WAREHOUSE Storage costs COST OF MATERIALS Change in Direct Material (DM) DIRECT MATERIAL 1 Nº KGS. €/KG TOTAL € BEGINNING INVENTORY GROSS PURCHASES - Returns - Rappels - Cash Discount NET PURCHASES PROCUREMENT DEPT COSTS TOTAL PURCHASE COSTS DM AVAILABLE DM USED (FIFO) WAREHOUSE DEPARTMENT COSTS DM USED COST END INV Valuation Rule #10: Defines the acquisition price as the one as per the invoice plus all additional expenses that occur until the goods are in storage. Therefore, storage costs are to be accrued to income of the period (allocated to sold products). COST OF MATERIALS Treatment of holding / storage costs according to outputs: In case holding costs is attributed to sold stock: Higher consumption of raw materials. Lower margins and results. Inventories not overvalued. The warehouse costs for this period are fully assumed by the income statement for that period. As a general rule: WAREHOUSE OUTPUT COST (CONSUMPTION) = INPUT COST + STORAGE COSTS 15 FUNCTIONAL INCOME ACCOUNT P1..........TOTAL Pn Net sales...........................x...............x.........x - Cost fo sales........... (x)............ (x)......(x) = Gross Margin................x...............x..........x - Distribut. I C.......... (x)............ (x)........ (x) = Com Margin...................x...............x..........x - Admin. I C..............................................((x) = OPERATING RESULT...........................x ± Financial Result.......................................(x) = ORDINARY RESULT.............................x ± Non recurring / extra. result............... (x) = Net analytical result.................................x ± Incorporation Diff................................... (x) = Profit before Taxes (as per Fin Acc)...x OUTLINE OF TOPIC 2 1. Identification and classification of costs. 2. Location of costs: the distribution key. 3. Allocation and allocation of costs: the unit of work. 4. Analysis of margins and results: the cost of production and the structure of the functional operating account. COSTING PROCESS STARTING DATA PHASES OF COSTING PRODUCTS IDENTIFICATION CLASSIFICATION ALLOCATION ASSIGNMENT 18 PHASES OF COSTING: 1ST PHASE: IDENTIFICATION FINANCIAL ACCOUNTING: – G3: Opening stock 1st Dist NON- – G6: Purchases and expenses INCORPORABLE 2nd CHARGES (account Dist 630/IMPAIRMENTS) – G7: Revenue Depreciation LOADS INCORPORABLE (economic sense) (rest) EXTRA LOADS ANALYTICAL: – Factors not given by Fin. Acc. BASE ELEMENTS (B.E.) (FACTORS CONSUMED) 19 2nd PHASE: CLASSIFICATION COST OF PRODUCTS D.C. (REGARDING PRODUCTS) B.E. I.C. (REGARDING PRODUCTS) The cost factors consumed in the period (base elements) are classified as direct and indirect, with respect to the products. Note that a direct cost with respect to the products, is also with respect to the center in which it is consumed 20 PHASE 3: LOCATION (DIRECT COSTS AND PRIMARY DISTRIBUTION OF I.C.) PRODUCTS T1 (WOOD) IL workshop managers T2 (METALS) Main centers D.C. Rivets T3 (ASSEMBLY) I.C. Insurance premiums? Energy consumption? I.L. Production Manager? ADMINISTRATION COMMON: SHARE MAINTENANCE Auxiliary centers CLEANING 21 COST CENTERS CONCEPT INDIRECT COST ACCUMULATION CENTRES REAL DIVISIONS OF THE COMPANY COMPUTING CENTERS GROUP HOMOGENEOUS COSTS UNIT OF WORK OR TRANSFER CLASSIFICATION MAIN: Work on product (purchases, sales, all production) AUXILIARY: They work for other centers (maintenance, cleaning, personnel, accounting, quality control, etc.) MIXED: They are, simultaneously, auxiliary and main 22 COST CENTERS In a first approximation, it is usual to match the cost centers with the functions performed in the company, which, in general, are: FUNCTION/CENTER COST of......... Supply Purchasing, procurement Production (1) Manufacturing, processing, production Sales Distribution, marketing, sales Administration Administration, general, common Financing Financing (1) Commercial companies do not perform this function 23 PRIMARY DISTRIBUTION: INDIRECT LOAD RECLASSIFICATION TABLE *CONCEPT *PRACTICAL PROVISION CONCEPT TOTAL P1 P2..... A1 A2..... OTHER SUPPLIES (1) and (2) Consumption of Indirect Materials: Calculate PERSONAL (MOI) (2) Calculate REST CTAS. G6 – 630 AIM by value calculated in economic terms COST OF EQUITY (2) TOTAL PRIMARY COSTS ∑ ∑ ∑ ∑ ∑ ∑ (1) All, one by one, materials other than DM (2) The factors consumed in a given center, to that center. Those common to several centers: Distribute through DISTRIBUTION KEYS 24 DISTRIBUTION KEYS CONCEPT: Tool that will allow the distribution of indirect costs, common to several carriers, among them. NATURE – VARIABLES (hh, hm, etc.) – PARAMETERS (m², m³, etc.) REQUIREMENTS – REPRESENTATIVENESS (causality criterion) It must give an idea, as close as possible of the consumption of the factor to be distributed, for each carrier common to that factor – OPERABILITY (economic criterion) 25 COSTING PHASES:LOCATION EXAMPLE OF INDIRECT LOAD RECLASSIFICATION TABLE CONCEPT TOTAL PROCUREMEN PRODUCTION SALES ADMIN COST OF FINANCIAL T CAPITAL Supplies(1) 250.000 40.000 100.000 20.000 50.000 40.000 ME 7.200.000 800.000 1.600.000 1.600.000 2.400.000 800.000 Advertising 500.000 500.000 Insurance premiums(2) 200.000 20.000 90.000 20.000 60.000 10.000 Auxiliary materials 50.000 50.000 Depreciation (machinery) 75.000 75.000 Depreciation (building) 625.000 62.500 281.250 62.500 187.500 31.250 (3) Loans interests 75.000 75.000 PRIMARY COSTS 8.975.000 922.500 2.196.250 2.202.500 2.697.500 881.250 75.000 (1) Installed Power Kw/h (2) M. squares (3) M. squares 26 26 3rd PHASE:LOCATION (2) (SECONDARY DISTRIBUTION OF INDIRECT C.) PRODUCTS T1 (WOOD) T2 (METALS) Main Centers T3 (ASSEMBLY) 1st Distrb 2nd Distrb ADMINISTRATION MAINTENANCE Auxiliary Centers CLEANING 27 4TH PHASE: ALLOCATION TO PRODUCTS GEN. MANUF. COSTS (DC) ALLOCATION (DIRECT) PROCESS 1 IMPUTATION (U. Of W.) PRODUCTS (IC) (DC) Main costs PROCESS 2 (IC) (DC) PROCESS 3 (IC) COMMON, DISTRIBUTE (WORK UNIT) 28 UNIT OF WORK OR TRANSFER CONCEPT: Tool that will allow the transfer of common indirect costs, either to another center (2nd distribution), or to the products (allocation) – REPRESENTATIVE VARIABLE OF CENTER COSTS DISTRIBUTION KEY – REPRESENTATIVITY – OPERATIVENESS – REPRESENTATIVE VARIABLE OF THE ACTIVITY OF THE CENTER PURPOSES – ALLOCATION OF INDIRECT COSTS of a CENTRE – ANALYSIS OF THE EFFICIENCY OF THE CENTER 29 2ND DISTRIBUTION CONCEPT: Operation through which, the costs that have corresponded to the auxiliary centers in the 1ST DISTRIBUTION, will be transferred to the main centers. TYPES: – DIRECT – INDIRECT ALGEBRAIC: Solution of a system of n equations with n unknowns where n = number of auxiliary centers that subdistribute their costs UNILATERAL OR CASCADING ITERATIVE APPROXIMATE CONSEQUENCES: After the 2ND DISTRIBUTION, the auxiliary centers will be empty (at zero costs), with all the Indirect costs concentrated in the main centers. 30 EXAMPLE OF DIRECT 2nd DISTRIBUTION CONCEPT TOTAL PROCUREMEN PRODUCTION SALES ADMIN COST OF FINANCIAL T EQUITY Supplies 250.000 40.000 100.000 20.000 50.000 40.000 IL (90% of) 7.200.000 800.000 1.600.000 1.600.000 2.400.000 800.000 Advertising 500.000 500.000 Insurance 200.000 20.000 90.000 20.000 60.000 10.000 premiums Auxiliary 50.000 50.000 materials Deprec. 75.000 75.000 (machinery) Deprec. (building) 625.000 62.500 281.250 62.500 187.500 31.250 Int. Loans 75.000 75.000 PRIMARY 8.975.000 922.500 2.196.250 2.202.500 2.697.500 881.250 75.000 COSTS Quality Control 881.250 - 881.250 Financial 75.000 -75.000 SECONDARY 8.975.000 922.500 3.077.500 2.202.500 2.772.500 0 0 COSTS WORK UNITS Kgs purchased Machine hours Units sold Nº of units of 150.000 2.500 200.000 work Value of the work 6,15 €/kg 1.231€/hm 11€/pcsold 31 EXAMPLE OF INDIRECT 2nd DISTRIBUTION Centres Primary Costs Work units number. Of € work units Training 4.100 Training hours 115 IT 8.950 Services 204 provided Sales 12.560 Production 7.345 Labeling and 6.000 Packaging General 25.000 Services 32 EXAMPLE OF INDIRECT 2nd DSITRIBUTION The Training Center served 15 hours for itself, 10 for IT, 40 for Sales, the rest for Labeling and Packaging. The IT center was distributed as follows: 50 services for Training, 80 for Sales, 70 for Production and the rest was self- consumption. Solution: 4,100 + 50 s = 100 h 8.950 + 10 h =200 s h= 65 € S= 48 € 33 33 EXAMPLE OF INDIRECT 2ND DISTRIBUTION Concept TOTAL Training IT Sales Productio Labeling and General S. n Packaging Primary costs 63.955 4.100 8.950 12.560 7.345 6.000 25.000 2nd Distrib. (6.500) 650 2.600 3.250 Training (10h) (40h) (50h) 2nd Distrib. 2.400 (9.600) 3.840 3.360 IT (50s) (80s) (70s) Total 2nd Distrib. 2.400 650 6.440 3.360 3.250 ---- TOTAL COSTS 63.955 0 0 19.000 10.705 9.250 25.000 WORK UNITS Service Hours provided – € – € Nº of(115 = units 15) of h = 4.100 65 + 50 s €s (204 4) = s = 8.950 48 + 10 h h € work Value of the work 34 34 DIRECT COSTS: THE COST OF MATERIALS AND DIRECT LABOR COST OF MATERIALS (2): Purchasing or Procurement Function: » Selection of suppliers. » Negotiation of prices and contracts. » Issuance and monitoring of orders. Warehouse Function: » Reception and verification of orders. » Storage of materials. » Delivery of materials to the factory. 35 THE COST OF MATERIALS Cost of entry and cost of departure: Gross purchases Purchase or acquisition price - Returns s/c - Rappels s/c COST - Discounts s/c pp Cost of RAW MATS. OF = NET PURCHASES purchases DEPARTURE Cost of Procurement Dept. Other acquisition cost Purchase costs: FROM Insurance, transp… WAREHOUSE Storage costs 36 THE COST OF MATERIALS Cost of entry and cost of departure: Purchase costs: Tariffs , Transport, Insurance. Costs. Provisioning: – Two options: – Working with real data Delay getting information – Working with Budget Data Calculating Deviations Purchase Price: Purchases – Returns - Rappels - Discounts Cost of purchases or Cost of entry into warehouse: Purchase price + Procurement expenses + Procurement Costs = Cost of purchases of raw mats. OR COST OF ENTRY INTO WAREHOUSE 37 Notes on Procurement cost EXTERNAL: (Purchase costs) – Transport – Insurance – Taxes, etc. (Normally, already accounted for by C.F. and included in the account "purchases of...") INTERNAL: (Indirect costs of the purchasing center) – Staff costs – Depreciations – Power consumption, etc. (calculated by Cost Accounting itself) 38 THE COST OF MATERIALS Cost of entry and cost of departure: Holding Costs/Warehouse Costs / Sotorage costs – Costs related to the existence of the warehouse – Costs that depend on the nature and quantity of the items stored Input valuation: Valuation Rule #10: Defines the acquisition price as the one as per the invoice plus all additional expenses that occur until the goods are in storage. 39 THE COST OF MATERIALS Cost of entry and cost of departure: Stock valuation: Gross purchases - Returns - Rappels - Desctos of prompt payment = Net purchases + Procurement Costs = COST OF ENTRY INTO WAREHOUSE OR COST OF PURCHASES 40 PRACTICAL PROVISION FOR THE CALCULATION OF CONSUMPTION (1) (2) (1) X(2) CONCEPTS Nº OF UDS COST/UD. TOTAL Opening stock 100 10 1.000 Gross purchases 120 12 1.440 -Returns (10) 12 (120) -Rappels 110 (ratio) 1.36 (150) = Net purchases 110 (ratio) 10.64 1.170 + Procurement Indirect 110 (ratio) 0.36 40 costs = Warehouse entry cost 110 11 1.210 42 THE COST OF MATERIALS Cost of entry and cost of departure: Output valuation: Treatment of holding costs 1. Based on the entries. 2. Based on the outputs. 3. Based on all units stored during the period. 46 THE COST OF MATERIALS Treatment of holding / storage costs according to inputs: The 10th valuation rule prohibits it: Adjustment when transferring the valuation data to the financial accounting. In case holding cost is included in stocks valuation: Lower consumption of raw materials. Higher margins and results. Overvalued inventories. Transfer of warehouse costs from this period to the next via final stocks of raw materials. 47 THE COST OF MATERIALS Treatment of holding / storage costs according to outputs: In case holding costs is attributed to sold stock: Higher consumption of raw materials. Lower margins and results. Inventories not overvalued. The warehouse costs for this period are fully assumed by the income statement for that period. As a general rule: WAREHOUSE OUTPUT COST (CONSUMPTION) = INPUT COST + STORAGE COSTS 48 THE COST OF MATERIALS EXAMPLE 2: Based on the following data: Raw materials inventory: September 2024. CONCEPT QUANTITY UNITARY TOTAL OPENING STOCK 5 tons 10 €/tn 50 € GROSS PURCHASES 20 tons 12€/tn 240 € RAPPELS 20 € PROCUREMENT 80 € COSTS WAREHOUSE COSTS 100 € CLOSING COSTS 10 tons ? ? CONSUMPTION ? ? ? 49 THE COST OF MATERIALS It is requested: Calculate the consumption and valuation of final stocks of raw materials at September 30, taking into account that the criterion of exit from warehouse is FIFO, under the following 2 hypotheses: 1º.- The company passes on the warehouse costs on the inputs. 2º.- The company passes on the warehouse costs on the outputs. 50 THE COST OF MATERIALS Solution: Hypothesis 1. CONCEPT QUANTITY UNITARY TOTAL OPENING STOCK 5 TN 10€/TN 50 € GROSS PURCHASES 20 TN 12€/TN 240 € - RAPPEL (20€) - RETURNS -0 = NETS PURCHASES 20 TN 11 €/TN 220€ + PROCUREMENT 80€ COSTS + WAREHOUSE COSTS 100€ =ENTRY COST 20 TN 20 €/TN 400€ 51 THE COST OF MATERIALS Solution: Hypothesis 1 RAW MATS. WAREHOUSE Op. Stock 5 tn *10 €/tn Purchases 20 tn * 20 E/tn CONSUMPTION 15 TN Closing stock 10 tn Consumption (fifo): (5tn * 10 €/tn) + (10tn * 20 €/tn) = 250€ Final stocks: (10 tn * 20 €/tn) = 200 € 52 THE COST OF MATERIALS Solution: Hypothesis 2 CONCEPT QUANTITY UNITARY TOTAL CLOSING STOCK 5 TN 10€/TN 50 € GROSS 20 TN 12€/TN 240 € PURCHASES - RAPPEL (20€) - RETURNS -0 = NET PURCHASES 20 TN 11 €/TN 220€ + PROCUREMENT 80€ COSTS =ENTRY COST 20 TN 15 €/TN 300€ 53 THE COST OF MATERIALS Solution: Hypothesis 2 RAW MATS. WAREHOUSE Opening stock 5 tn *10 €/tn Purchases 20 tn * 15 €/tn CONSUMPTION 15 TN Consumption (fifo): (5tn * 10 €/tn) + (10tn * 15€/tn) + 100 € = 300 € Final stocks: (10 tn * 15€/tn) = 150 € 54 CALCULATION OF THE PRODUCTION COST (PC) PC = DC + Ind Prod Costs (Gen Manuf Costs) = =Raw Materials (consumption) + DL + GMC PURCAHSE COST + Opening Stock – Closing Stock Net Puchases + Procurement Costs Gross purchases – Return – prompt payment discounts The cost of production is calculated for both finished products and semi-finished products and/or those in progress 55 FUNCTIONAL P&L ACCOUNT P1..........TOTAL Pn Net sales...........................x...............x.........x - Cost fo sales........... (x)............ (x)......(x) = Gross Margin................x...............x..........x - Distribut. I C.......... (x)............ (x)........ (x) = Com Margin...................x...............x..........x - Admin. I C..............................................((x) = OPERATING RESULT...........................x ± Financial Result.......................................(x) = ORDINARY RESULT.............................x ± Non recurring / extra. result............... (x) = Net analytical result.................................x ± Incorporation Diff................................... (x) = Profit before Taxes (as per Fin Acc)...x 56 57

Accounting for Decision Making - Topic 2 PDF

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