Class: MGMT 481-LA

Instructor: Dr Phelps
Date/Time: 9/25/2017
Location of Class: BBC 306

Accounting is a system to keep score of

 Asset
 Liabilities
 Equity accounts

Asset= Liabilities+ Equity

 Revenues
 Expenses

A transaction will affect 4 different accounts

Retained earnings = a balance sheet accounts [Equity]
A company usually generates their book monthly
Cash is a residual
Retained earnings does not physically exist

Multiple Step Annual Income Statement

Balance sheet shows the snapshot of the position on that date
Current assets are assets that are expected to be converted to
cash within 1 year

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 Class: MGMT 481-LA
Instructor: Dr Phelps
Date/Time: 9/25/2017
Location of Class: BBC 306
Long term assets are assets that are not expected to be
converted to cash within 1 year
Current liabilities are the debts that will be paid in cash within 1
year
Long term liabilities are the debts that will not be paid within 1
year
Cash flow for the time period shows the cash inflow and
outflows in the company
Managerial uses the data from the financial to create a decision
and forward looking
Fixed expenses- do not vary overtime
Variable expenses- varies overtime

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 Class: MGMT 481-LA
Instructor: Dr Phelps
Date/Time: 9/25/2017
Location of Class: BBC 306
Product cost vs Period cost
Product cost relates directly to the product that they create.
Period cost relates to the time period.
Product cost:
- Direct materials
- Direct labors
- Manufacturing overhead
Direct materials goes to raw materials, work in process, and
finished goods
Direct labor goes to labor costs
Manufacturing overhead goes to supervisor and indirect labor
or materials
POHR [Predetermined OverHead Rate] is the rate that is used
to calculate manufacturing overhead.
The income statement can be divided to 3 divisions
- Revenue
- Fixed cost
- Variable cost

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 Class: MGMT 481-LA
Instructor: Dr Phelps
Date/Time: 9/25/2017
Location of Class: BBC 306
Example: XYZ selling widget
Revenue $20
Variable cost
Raw materials 6
Direct labor 8
Contribution margin $6/unit
Fixed cost
Rent $2,000
Depreciation $4,000
Total Fixed Cost = $6,000
How many units that needs to be sold in order to break even?
They need to sell 1,000 units in order to break even [6,000/6]
Company XYZ wants to cheapen the products. Raw materials
will go down to $4. The sales with the current materials are
1200units. However, if XYZ wants to use the cheaper raw
materials, their sales will go down by 10%. Should XYZ take the
deal?

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 Class: MGMT 481-LA
Instructor: Dr Phelps
Date/Time: 9/25/2017
Location of Class: BBC 306
Revenue $20
Variable cost
Raw materials 4
Direct labor 8
Contribution margin 8
Sales will be 1200-[1200*10%]=1080
Revenue will be 8*1080=$8640
Take the deal.