ch 6 ACCT
are selling and administrative expenses period costs or product costs?
(NEVER product) period costs
absorption costing def
a costing method that includes all of the manufacturing costs- DM, DL, and both FOH and VOH- in the unit product costs.
variable costing def
a costing method that includes only variable manufacturing costs- DM, DL, and VOH- in unit product costs
traceable fixed cost def
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 def
a fixed cost that supports more than one business segment, but its not traceable in whole or in part to any one of the business segments
segment margin def
a segment's contribution margin less its traceable fixed costs. It represents the margin available after a segment has covered all of it's own traceable costs.
how to differentiate a traceable cost from a common cost?
a traceable cost is one that would disappear if the segment was dropped
difference between a traceable fixed cost and a common fixed cost?
a traceable is for the segment, while a common is common to the whole area
Out of variable costing and Absorption, which one is GAAP?
absorption
Out of variable costing and Absorption, which one is for external purposes only?
absorption
segment deg
any part or activity of an organization about which managers seek cost, revenue, or profit data
most useful in decisions involving short-run changes in volume
contribution margin
variable costing is also known as
direct costing, marginal costing
product costs
dm, dl, VOH, FOH
ending inventory and absorption net income do or do not move in the same direction?
ending inventory and absorption net income do in the same direction
What is the main difference between variable costing and absorption costing methods?
fixed manufacturing overhead. (FOH is included with absorption)
for absorption costing, FOH is treated as ______ costs
for absorption costing, FOH is treated as product costs
for variable costing, FOH is treated as ______ costs
for variable costing, FOH is treated as period costs
what is absorption costing also known as
full cost
if units produced is less than units sold, what happens to the inventory and difference between absorption and variable costing?
inventory decreases, absorption less than variable costing (EI down, GNOI down)
if units produced is more than units sold, what happens to the inventory and difference between absorption and variable costing?
inventory increases, absorption bigger than variable costing (EI ^, GNOI ^)
if units produced= units sold, what happens to the inventory and difference between absorption and variable costing?
no change in inventory, absorption = variable costing (EI =, GNOI =)
for variable expenses, how is FOH treated?
period cost (expensed immediately)
example of common fixed costs
president/ CEO/ salary,
segment margin
segment contribution margin- traceable fixed costs
best gauge of the long-run profitability of a segment
segment margin
segmented profit margin fomula
segment profit margin - fixed expenses controllable by others (like CEO salary, Headquarter's rent) = segmented profit margin
if a segment were entirely eliminated, what would be the effect on a TRUE common fixed cost
unchanged
Out of variable costing and Absorption, which one is for internal purposes only?
variable
when is FOH shown on the income statement under variable costing
when incurred
when is FOH shown on the income statement with absorption
when the product is sold
