Accounting 210 Chapter 5

Absorption Costing

- A costing method that includes all manufacturing costs. --direct materials, direct labor, and both variable and fixed manufacturing overhead -- in unit product costs.

Variable Costing

- A costing method that includes only variable manufacturing costs. --direct materials, direct labor, and variable manufacturing overhead-in unit product costs.

Traceable Fixed Costs

- A fixed cost that is incurred because of the existence of a particular business segment and that would be eliminated if the segment were eliminated.

Common Fixed Cost

- A fixed cost that supports more than one business segment, but is not traceable in whole or in part to any one of the business segments.

Segment margin

- A segment's contribution margin less its traceable fixed costs. --it represents the margin available after a segment has covered all of its own traceable costs.

Segment

- Any part or activity of an organization about which managers seek cost, revenue, or profit data.

What was the absorption costing net operating income last year?

Direct Materials + Direct Labor + Variable Manufacturing Overhead + (Fixed Manufacturing overhead cost / Units produced) = Absorption costing unit product cost Sales ($per unit x number of units sold) - Cost of goods sold (Absorption costing unit product cost per unit x units sold) = Gross margin -Selling and Administrative expenses ( $per unit x units sold + $) =Net Operating Income

What is the absorption costing unit product cost for the month?

Direct Materials + Direct Labor + Variable Manufacturing Overhead + Fixed Manufacturing Overhead Cost (Fixed Manufacturing Overhead / Units produced) = Absorption Costing

What is the net operating income for the month under absorption costing?

Direct Materials + Direct Labor + Variable Manufacturing Overhead + Fixed Manufacturing Overhead Cost (Fixed Manufacturing Overhead/Units produced) = Absorption costing unit product cost Sales (units sold x per unit) -cost of good sold (units sold x per unit) = Gross Margin - Selling and administrative expenses [(units sold x $per unit sold) -selling and administrative expenses = Net operating Income

The variable costing unit product cost is:

Direct Materials + Direct Labor + Variable Manufacturing Overhead = Variable Costing Unit Product Cost

The total contribution margin for the month under variable costing is:

Direct materials + Direct labor + Variable Manufacturing Overhead =(Variable costing unit product cost) Sales (units sold x $per unit) + Variable expenses + Variable cost of good sold (units sold x $per unit) + Variable selling and administrative (units sold x $per unit) = Contribution Margin

Assuming a beginning inventory of zero, production of 4,000 units and sales of 3,600units, the dollar value of the ending inventory under variable costing would be:

Units in beginning inventory +Units produced -Units sold =Units in ending inventory Value of ending inventory under variable costing = (Unit in ending inventory) X (Variable product cost)

What is the total period cost for the month under absorption costing?

Variable Selling and Administrative Cost (Per unit x Units Sold) + Fixed selling and Administrative = Absorption costing total period cost