06/27/22 06/27/22 rd rd 1 Engineering Economic Engineering Economic Analysis Analysis Chapter 18 Accounting and Engineering Economy
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Engineering Economic Engineering Economic AnalysisAnalysis
Chapter 18 Accounting and Engineering Economy
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Accounting Management Engineering Economy
About past About past and future About future
Analyzing Capital budgeting Feasibility of alternatives
Summarizing Decision making Collect/analyze data
Reporting Setting goals Estimate
Financial indicators Assessing impacts Evaluate projects
Economic trends Analyzing risks Recommend
Cost acquisitions Planning Audit
Controlling Identity needs
Record keeping Trade-offs/constraints
Data and Communications Data and Communications
Budgeting Data and Communications Estimating
Accounting, managerial, and engineering economy Accounting, managerial, and engineering economy functionsfunctions
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Controller
Costs Taxes Budgets
General Accounting
Auditing Systems
Six Principal Specializations of Private Six Principal Specializations of Private AccountingAccounting
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AssetsAssets
Properties that are owned and have monetary value
e.g. Cash, inventory, buildings, equipment.
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LiabilitiesLiabilities
Accounts owned to outsidersAccounts owned to outsiders
e.g., notes payable, accounts payable, e.g., notes payable, accounts payable, bonds payable, income taxesbonds payable, income taxes
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EquityEquity
The owner's interest The owner's interest (assets minus liabilities) (assets minus liabilities)
in an enterprise.in an enterprise.
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Accounting EquationAccounting Equation
Assets = liabilities + equity
This accounting identity is always maintained.
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TransactionsTransactions
• Events that result in change of assets, liabilities, or equity.
• Business papers – original documents• Journals – books of original entries• Ledgers – complete set of accounts
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Summarizing InformationSummarizing Information
• Posting• Ledger (classify the data in summary)
provide the basis for preparing financial statements
• Income Statement• Balance Sheet
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Income StatementIncome Statement
• Summary of revenue, expense, and net income over a specified period of time.
• Accrual basis – revenue when earned and expense when incurred
• Cash basis –revenue and expense with receipt and payment of cash.
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Income StatementIncome Statement
Revenue from sales
Cost of goods sold
Gross profit on sales
Operating expenses
Selling expenses, G & A, other
Net income
(Gross profit – Operating expenses)
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Income Statement vs. Balance SheetIncome Statement vs. Balance Sheet
Enter asset, liability, capital, income, and expenseEnter asset, liability, capital, income, and expense Income Statement Balance Sheet
Accts payable Liability
Accts receivable Asset
Cash Asset
Equipment Asset
Equity Capital
Fees income Income
Machinery Asset
Notes payable Liability
Other Income Income
Salary Expense Expense
Supplies Asset
Supply Expense Expense
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Balance SheetBalance Sheet
• Assets: Resources the business ownsarranged in order of liquidity
• Liabilities: Claims against those resourcesarranged in order of expected payment
• Equity: The difference between assets and liabilities; often called capital or stockholders' equity
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Classify as current asset, long-term asset, Classify as current asset, long-term asset, current liability, or long-term liability.current liability, or long-term liability.
1. Accounts Receivable 6. Supplies1. Accounts Receivable 6. Supplies
2.2. Accounts payable Accounts payable 7. Salaries 7. Salaries payablepayable
3.3. Notes payableNotes payable 8. Bonds 8. Bonds payablepayable
4.4. Mortgage PayableMortgage Payable 9. Equipment9. Equipment
5.5. CashCash 10. Land 10. Land
Current assets: Current assets: 1, 5, 61, 5, 6Long-term assets: Long-term assets: 9, 109, 10Current liabilities: Current liabilities: 2, 3, 82, 3, 8Long-term liabilities:Long-term liabilities: 4, 8 4, 8
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Balance SheetBalance SheetBalance Sheet: Owners’ Equity
Stockholders' EquityThe residual interest in the assets that remain after deducting the liabilities.Contributed CapitalA measure of the capital contributed to the company by its owners.Contribution can be through cash, noncashassets, or valuable services.Different classes of capital: Common stock and Preferred stockRetained earnings
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18-9 Annual sales of $500K and a daily profit of $1K 6 days a week, find total yearly before tax business expense.
6 * 52 = 312 days of $1K profit or $312K profit/yearRevenues - Profit = Expense or 500K - 312K = $188K.
18-10 A firm has $5M in current assets (CA) and $2M in current liabilities (CL). Find the working capital and current ratio.
Working capital = current assets - current liabilities = $5M - $2M = $3M
Current ratio = CA/CL = 5/2 = 2.5
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18-13 Admin expense $2,750K Subcontract services 18,000K Development expense 900K Interest expense 200K Sales revenue 30,000K Selling expense 4,500K Develop the income statement
Operating Revenue and expensesRevenue
Sales 30,000K Total 30,000K
Expenses Admin 2,750K Cost of goods sold 18,000K Development 900K Selling 45,00K Total 26,150KTotal operating income 3,850KNon-operating revenues & expenses Interest paid 200KIncome before taxes 3,650KTaxes (@27%) 985.5K Net profit (loss) 2,664.5K
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18-24 Indirect annual manufacturing costs $60M for 12,000 machine-hours
a) Compute predetermined indirect cost application rate using machine hours as the burden vehicle.
60M/12K = $5,000/hour
b) Determine the total cost of production with direct material costs of $1M, direct labor costs of $600K and 200 machine hours.
Total cost = $1M + 0.6M + 200*5K = $2.6M.
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18-25 Using traditional costing; categorize the following as direct or indirect:Machine run costs I Costs to market the product IMachine depreciation I Cost of storage IMaterials handling costs I Insurance costs ICost of materials D Cost of product sales force IOvertime expenses D Engineering drawings IMachine operator wages D Machine labor DUtility costs I Cost of tooling and fixtures ISupport (admin staff salaries) I