Managerial Accounting Exam 2 (chapter 6)
A segment margin is computed by
subtracting the traceable fixed costs of a segment from its contribution margin. The segment margin is a valuable tool for assessing the long-run profitability of a segment.
if units produced equals units sold over a period of five years, net income is the same and there is no difference in (variable and absorption costing)
income
calculation for unit product cost
Add together your total direct materials costs, your total direct labor costs and your total manufacturing overhead costs that you incurred during the period to determine your total product costs. Divide your result by the number of products you manufactured during the period to determine your product cost per unit.
Variable vs absorption costing
For absorption costing fixed manufacturing costs must be assigned to products to properly match revenues and costs. For variable costing fixed manufacturing costs are capacity costs and will be incurred even if nothing is produced.
why is there a change of income in the process of absorption and variable? What's the difference?
This difference is because of fixed manufacturing overhead that becomes the part of ending inventory under absorption costing system. Variable doesn't.
if units produced exceed units sold which has the higher income? absorption or variable costing
absorption costing
A traceable fixed cost of a segment
is a fixed cost that is incurred because of the existence of the segment. If the segment were eliminated, the fixed cost would disappear. Examples of traceable fixed costs include the following: The salary of the Fritos product manager at PepsiCo is a traceable fixed cost of the Fritos business segment of PepsiCo. The maintenance cost for the building in which Boeing 747s are assembled is a traceable fixed cost of the 747 business segment of Boeing.
absorption costing
treats all costs of production as product costs, regardless of whether they are variable or fixed. Since no distinction is made between variable and fixed costs, absorption costing is not well suited for CVP computations. Under absorption costing, the cost of a unit of product consists of direct materials, direct labor, and both variable and fixed overhead. Variable and fixed selling and administrative expenses are treated as period costs and are deducted from revenue as incurred.
variable costing
treats only those costs of production that vary with output as product costs. This approach dovetails with the contribution approach income statement and supports CVP analysis because of its emphasis on separating variable and fixed costs. The cost of a unit of product consists of direct materials, direct labor, and variable overhead. Fixed manufacturing overhead, and both variable and fixed selling and administrative expenses are treated as period costs and deducted from revenue as incurred.
difference between product cost and period cost
The product costs of direct materials, direct labor, and manufacturing overhead are also "inventoriable" costs, since these are the necessary costs of manufacturing the products. Period costs are not a necessary part of the manufacturing process. Period costs are advertising, sales commissions, office supplies, office depreciation, legal and research and development costs.
Selling and admin expenses are
never apart of unit product cost
