會(huì)計(jì)學(xué)（第21版）課件：Differential Analysis and Product Pricing

DifferentialAnalysisandProductPricingAccounting,21stEditionWarrenReeveFess

Someoftheactionhasbeenautomated,soclickthemousewhenyouseethislightningboltinthelowerright-handcornerofthescreen.Youcanpointandclickanywhereonthescreen.1. Prepareadifferentialanalysisreportfordecisionsinvolvingleasingorsellingequipment,discontinuinganunprofitablesegment,manufacturingorpurchasinganeededpart,replacingusablefixedassets,processingfurtherorsellinganintermediateproduct,oracceptingadditionalbusinessataspecialprice.ObjectivesAfterstudyingthischapter,youshouldbeableto:2. Determinethesellingpriceofaproduct,usingthetotalcost,productcost,andvariablecostconcepts.Objectives3. Calculatetherelativeprofitabilityofproductsinbottleneckproductionenvironments.DifferentialAnalysisLeasingorsellingequipment.Discontinuinganunprofitablesegment.Manufacturingorpurchasinganeededpart.Replacingusablefixedassets.Processingfurtherorsellinganintermediateproduct.Acceptingadditionalbusinessataspecialprice.Differentialanalysisisusedforanalyzing:DifferentialAnalysisDecisionsDifferentialAnalysisAlternativeAorAlternativeB Differentialrevenue– Differentialcosts DifferentialincomeorlossLeaseorSellEquipmentMarcusCompanyMarcusCompanyisconsideringdisposingofequipmentthatcost$200,000andthathas$120,000ofaccumulateddepreciation.LeaseorSellEquipmentMarcusCompanySellequipmenttoBrokerTheequipmentcanbesoldthroughabrokerfor$100,000,lessa6%commission.LeaseorSellEquipmentMarcusCompanyLeaseequipmenttoPotamkinCompanyORPotamkinCompany,thelessee,hasofferedtoleasetheequipmentforfiveyearsforatotalconsiderationof$160,000.LeaseorSellEquipmentMarcusCompanyAttheendofthefifthyear,theequipmentisexpectedtohavenoresidualvalue.Duringtheperiodofthelease,MarcusCompanyexpectstoincurrepair,insurance,andpropertytaxesestimatedat$35,000.ProposaltoLeaseorSellEquipmentJune22,2006Differentialrevenuefromalternatives: Revenuefromlease $160,000 Revenuefromsales 100,000 Differentialrevenuefromlease $60,000Leasetheequipment!Differentialcostofalternatives: Repairs,insurance,taxes $35,000 Commissionexpenseonsale 6,000 Differentialcostoflease 29,000Netdifferentialincomefromthelease alternative $31,000ORProposaltoLeaseorSellEquipmentJune22,2006Leasealternative: Revenuefromlease $160,000 Depreciationexpenseforremaining5years $80,000 Repairs,insurance,andpropertytaxexpense 35,000

115,000 Netgain $45,000Thisisthetraditionalanalysis.Thedifferentialincomeisthesame.Sellalternative: Salesprice $100,000 Bookvalueofequipment $80,000 Commissionexpense 6,000

86,000

Netgain 14,000Netdifferentialincomefromtheleasealternative $31,000DiscontinueaSegmentorProductSales $100,000

$900,000

$1,000,000Costofgoodssold: Variablecosts $60,000 $420,000 $480,000 Fixedcosts 20,000

200,000

220,000 Totalcostofgoodssold $80,000

$620,000

$700,000Grossprofit $20,000

$280,000

$300,000Operatingexpenses: Variableexpenses $25,000 $155,000 $180,000 Fixedexpenses 6,000

45,000

51,000 Totaloperatingexpenses $31,000

$200,000

$231,000Income(loss)fromoperations $(11,000) $80,000 $69,000BattleCreekCerealCo.CondensedIncomeStatementFortheYearEndedAugust31,2006ShouldBranFlakesbediscontinued?DifferentialitemsVariablecost$60,000

Sales$100,000

Variableexpenses$25,000

BranFlakesOtherCerealsTotalBattleCreekCerealCo.CondensedIncomeStatementFortheYearEndedAugust31,2006DifferentialitemsSales $100,000

$900,000

$1,000,000Costofgoodssold: Variablecosts $60,000 $420,000 $480,000 Fixedcosts 20,000

200,000

220,000 Totalcostofgoodssold $80,000

$620,000

$700,000Grossprofit $20,000

$280,000

$300,000Operatingexpenses: Variableexpenses $25,000 $155,000 $180,000 Fixedexpenses 6,000

45,000

51,000 Totaloperatingexpenses $31,000

$200,000

$231,000Income(loss)fromoperations $(11,000) $80,000 $69,000Variablecost$60,000

Sales$100,000

Variableexpenses$25,000

BranFlakesOtherCerealsTotalIfBranFlakesisdiscontinued,netincomewilldecreaseby$15,000.ProposaltoDiscontinueBranFlakesSeptember29,2006Differentialrevenuefromannualsales ofBranFlakes: Revenuefromsales $100,000DifferentialcostofannualsalesofBrianFlakes: Variablecostgoodssold $60,000 Variableoperatingexpenses 25,000

85,000Annualdifferentialincomefromsalesof BranFlakes $15,000Don’tdiscontinue!MAKEorBUYCurrently,afirmmanufacturesthedashboardsthatitusesinmakingautomobiles.Thecostofmanufacturingthispartissummarizedbelow.Anoutsidesupplierhasofferedtoprovidethepartfor$240.Shouldthecarmanufactureraccepttheoffer?Directmaterials $80Directlabor 80Variablefactoryoverhead 52Fixedfactoryoverhead 68Totalcostperunit $280INITIALREACTION—DON’TMAKEINTERNALLYProposaltoManufactureAutomobilePartFebruary15,2006Purchasepriceofpart $240.00Differentialcosttomanufacture: Directmaterials $80.00 Directlabor 80.00 Variablefactoryoverhead 52.00

212.00Costsavingsfrommanufacturingpart $28.00Thefixedfactoryoverheadisexcludedbecauseitisnotrelevant—socontinuemakingthepart.ReplaceEquipmentAssumethatabusinessisconsideringthedisposalofseveralidenticalmachineshavingatotalbookvalueof$100,000andanestimatedremaininglifeoffiveyears.Theoldmachinescanbesoldfor$25,000.Theycanbereplacedbyasinglehigh-speedmachineatacost$250,000.Thenewmachinehasanestimatedusefullifeoffiveyearsandnoresidualvalue.Analysesindicateanestimatedannualreductioninvariablemanufacturingcostsfrom$225,000withtheoldmachineto$150,000withthenewmachine.Nootherchangesinthemanufacturingcostsortheoperatingexpensesareexpected.Shouldthenewmachinebepurchased?Annualvariablecosts—presentequipment $225,000Annualvariablecosts—newequipment 150,000Annualdifferentialdecreaseincost $75,000Numberofyearsapplicable x5Totaldifferentialdecreaseincost $375,000Proceedsfromsaleofpresentequipment 5,000 $400,000Costofnewequipment 250,000Netdifferentialdecreaseincost,5-years $150,000Annualnetdifferential—newequipment $30,000ProposaltoReplaceEquipmentNovember28,2006Buythenewequipment!ProcessorSellArefineryproduceskeroseneinbatchesof4,000gallonsataprocessingcostof$0.60pergallon.Kerosenecanbesoldwithoutfurtherprocessingfor$0.80pergallonorfurtherprocessedtoyieldgasoline,whichcanbesoldfor$1.25pergallon.Theadditionalprocessingcost$650perbatch,and20%ofthegallonsofkerosenewillevaporateduringproduction.Differentialrevenuefromfurtherprocessing perbatch: Revenuefromsaleofgasoline[(4,000gallons– 800gallonsevaporation)x$1.25] $4,000 Revenuefromsaleofkerosene(4,000gallons x$0.80) 3,200 Differentialrevenue $800Differentialcostperbatch: Additionalcostofproducinggasoline 650Differentialincomefromfurtherprocessing gasolineperbatch $150ProposaltoProcessKeroseneFurtherOctober1,2006Processfurther!AcceptBusinessataSpecialPriceThemonthlycapacityofasportinggoodsbusinessis12,500basketballs.Currentsalesandproductionareaveraging10,000basketballspermonth.Thecurrentmanufacturingcostis$20(variable,$12.50;fixed,$7.50).Thedomesticsellingpriceis$30.Themanufacturerreceivesanofferfromanexporterfor5,000basketballsat$18each.Productioncanbespreadoverthreemonths,sothesebasketballscanbemanufacturedusingnormalcapacity.Domesticsaleswouldnotbeaffected.Shouldtheofferbeacceptedorrejected?Differentialrevenuefromacceptingoffer: Revenuefromsaleof5,000additionalunitsat$18 $90,000Differentialcostofacceptingoffer: Variablecostof5,000additionalunitsat$12.50 62,500Differentialincomefromacceptingoffer $27,500ProposaltoSellBasketballstoExporterMarch10,2006Accepttheoffer!SettingNormalProductSellingPricesSettingNormalProductSellingPrices1. Demand-basedmethods2. Competition-basedmethods

Cost-PlusMethodsMarketMethods1. Totalcostconcept2. Productcostconcept3. VariablecostconceptMarketMethodsDemand-basedmethodssetthepriceaccordingtothedemandfortheproduct.MarketMethodsCompetition-basedmethodssetthepriceaccordingtothepriceofferedbythecompetitors.UsingtheTotalcostconcept,allcostofmanufacturingaproduct...ManufacturingCostTotalCostConcept…plusthesellingandadministrativeexpenses...ManufacturingCostSellingExpensesAdministrativeExpensesTotalCostConcept…areincludedinthecosttowhichthemarkupisadded.ManufacturingCostSellingExpensesAdministrativeExpensesTotalcostDesiredProfitTotalCostConceptThecompany’sdesiredprofitis$160,000.ManufacturingCostSellingExpensesAdministrativeExpensesDesiredProfitDesiredsellingpriceTotalCostConcept PerUnit Total Cost CostCostStructureExample(100,000units)VariableCosts(perunit):

Directmaterials $3.00 $300,000 Directlabor 10.00 1,000,000 Factoryoverhead 1.50 150,000 Sellingandadministrative 1.50

150,000 Totalvariablecosts $16.00

$1,600,000FixedCosts: Factoryoverhead .50 50,000 Sellingandadministrative .20

20,000 Totalfixedcosts .70

70,000Totalcosts $16.70 $1,670,000TotalCostConceptOnlythedesiredprofitiscoveredinthemarkup.MarkupPercentage:

Desiredprofit $160,000 Totalcosts $1,670,000 =9.6%=Totalcostpercalculator $16.70Markup($16.70x9.6%)

1.60Sellingprice $18.30TotalCostConceptProofthatasaleof100,000computersat$18.30eachwillgenerateadesiredprofitof$160,000.Sales(100,000unitsx$18.30) $1,830,000Expenses: Variable(100,000unitsx$16.00) $1,600,000 Fixed($50,000+$20,000) 70,000

1,670,000Incomefromoperations $160,000DigitalSolutionsInc.IncomeStatementFortheYearEndedDecember31,2006TotalCostConceptProductCostConceptUsingtheproductcostconceptonlythemanufacturingcostsareincludedintheamounttowhichthemarkupisapplied. PerUnit Total Cost CostCostStructureExample(100,000units)VariableCosts:

Directmaterials $3.00 $300,000 Directlabor 10.00 1,000,000 Factoryoverhead 1.50 150,000 Sellingandadministrative 1.50

150,000 Totalvariablecosts $16.00

$1,600,000FixedCosts: Factoryoverhead .50 50,000 Sellingandadministrative .20

20,000 Totalfixedcosts .70

70,000Totalcosts $16.70 $1,670,000ProductCost=$15perunitProductCostConceptManufacturingCostProductCostMarkupProductCostConceptAdministrativeExpense+SellingExpense+DesiredProfitDesiredSellingPriceProductCostConceptMarkuppercentageDesiredprofit+Totalmanufacturingcosts=TotalsellingandadministrativeexpensesMarkuppercentage=22%Markuppercentage=$160,000+$170,000$1,500,000ProductCostConceptDM($3x100,000) $300,000DL($10x100,000) 1,000,000Factoryoverhead: Variable($1.50x100,000) 150,000 Fixed 50,000Totalmanufacturingcosts $1,500,000Manufacturingcostpercalculator $15.00Markup($15x22%) 3.30Sellingprice $18.30ProductCostConceptVariableCostConceptThevariablecostconceptusestotalofthevariablemanufacturingcostsandthevariablesellingandadministrativeexpensesastheamounttoapplyamarkup.ProductCostMarkupVariableCostConceptVariableManufacturingCost+VariableAdministrativeandSellingExpensesTotalFixedCosts+DesiredProfitDesiredSellingPriceVariableCostConceptMarkuppercentageDesiredprofit+Totalvariablecosts=TotalfixedcostsMarkuppercentage=$160,000+$50,000+$20,000$1,600,000Markuppercentage=14.4%Directmaterials($3x100,000) $300,000Directlabor($10x100,000) 1,000,000Variablefactoryoverhead ($1.50x100,000) 150,000Variablesellingandadministrative expenses($1.50x100,000) 150,000Totalvariablecosts $1,600,000VariableCostConceptVariablecostpercalculator $16.00Markup($16x14.4%) 2.30Sellingprice $18.30 VariableCostConceptTargetCostingUsingtargetcostingthecostisdeterminedbysubtractingadesiredprofitfromthesellingprice.PresentFutureActualCostTargetCostProfitProfitPresentMarketPriceRequiredcostreductionExpectedMarketPriceDri