accounting 19

variable = sales - VC = Cm - FC = NI

Variable equation for net income?

controllable costs

a cost is this if a manager has th power to determine or at least markedly affect the amount incurred

absorption= sales - CGS= GM - selling exp - Gen and admin exp = NI

absorption equation for net income?

absorption costing

all manufacturing costs are assigned to products, these include DM, DL, and manufacturing OH variable and fixed. traditional

controllable costs

an effective cost control practice is to hold managers responsible only for these, ex- DM

uncontrollable costs

are not within the managers control or influence ex- costs related to production capacity

absorption costing

assumes that products absorb all costs incurred to produce them, can lead to misleading product cost information for managers business decsios

small

differences in income resulting from the alternative costing methods will be ______

product costs, period costs

fixed over head costs are included in ____ under absorption and included in ________ under variable costing

period cost

fixed overhead is treated as this _____ meaning it is expensed in the period it is incurred

income under variable + fixed OH end inventory - fixed OH beg inventory

how do you convert income under variable costing to absorption costing?

1. absorption cost per unit + 2. target markup per unit 3. = target selling price per unit

how do you determine selling price based on absorption costing?

absorption costing

if CVP analysis is prepared under this costing the data for CVP is not readily available, thus if used by this method substantial effort is needed

income under absorption costing= income under variable costing + Fixed OH cost in end inventory - Fixed OH in beginning inventory

income under absorption costing equation?

higher, lower

income under absorption is ______ when more units are produced relative to units sold and is _____ when fewer units are produced than sold

contribution format

it highlights the impact of each cost element for income, makes it easier for us to identify problem areas and to take cost control measures by levels of management

contribution margin

it is the excess of sales over variable costs, this margin contributes to covering all fixed costs and earning income

manufacturing margin= sales - variable production costs = manufacturing margin - variable sales and general admin = Contribution margin

manufacturing margin equation?

variable costing

only costs that change in total with change in production level are included in product costs, this consists of DM, DL, and variable manufacturing OH

number of units produced = number of units sold

reported income is identical under absorption costing and variable costing when...

manufacturing margin

some managers compute this which is sales less variable production costs

manufacturing margin

some managers require that internal income statements show this amount to highlight the impact of variable product costs on income

contribution margin income statement

the income statement under variable costing is referred to this

fixed overhead costs

the key difference between absorption and variable costing is their treatment of this

fixed manufacturing overhead

this does not change with changes in production in variable costing and thus is excluded from product costs under variable costing

production planning

this is an important managerial function, should be based on reliable sales forecasts

absorption costing

this is the only acceptable basis for external reporting under both US GAAP and IFRS

variable production costs and fixed production costs

under absorption costing, these are included in product costs

if production = sales and there is no beginning finished goods inventory

under what circumstances is reported income identical under both absorption and variable costing?

absorption in Net income more

when Units produced > units sold

absorption net income less

when units produced < units sold,

same net income

when units produced = units sold ,,

fixed OH is small % of total manufacturing costs, inventory levels are low, inventory turnover is rapid, period of analysis is long

when will the differences in income be small when using alternative costing methods

planning production

you don't want excess inventory= have to pay to keep or they're stolen. you don't want too little inventory= customers unhappy