Accounting ch. 6 pt 2

For contribution statement- All variable costs are expensed ___ the contribution line to make only the variable product cost to be used when calculating variable cogs, All fixed costs including fixed moh are expensed ____ the contribution margin, Contribution margin- Sales revenue- variable expenses(shows managers hwo much profit as been made on sales before considering fixed costs.

- Above. - Below

Under variable costing, fixed moh is expensed_____as a period cost, and under absorption costing fixed moh becomes part of the inventoriable product cost of each unit which isent expensed until the inventory is sold?

- Immediately

When______ remain constant both absorption costing and variable costing results in the same operating income.(common for lean producers.)?

- Inventory Levels (If units produced = units sold then inventory levels remain constant and aborption income= variable costing income.)

Differences between income statements of companies: ____ have no cogs so all op expenses are either variable or fixed,(if mixed company first estimates variable and fixed portions with methods like regression), _____ ahve cogs but since they buy all their inv all cogs is variable, merch and sercivers will always have = operating income regardless of income statement format?

- Servicers - Merchers

Under ______ costing all fixed moh is expensed as a period cost?

- Variable

Fixed manufacturing costs are treaded as inventoriable product costs under ____and period costs under ____costing?

- absorption - variable

If inventory level has grown , wed expect operating income under _______than it is under _______?

- absorption costing - Variable costing

Expenses being put in another month ______ absorption costing income

- decreases(As inventory declines, the first months fixed moh costs are assigned to inventory expenses in second month which decreases second months absorption costing income.)

For noi equaitons p is ____s is ____, noi is net operating?

- production - sales

is besst for internals because the reproted unit cost is purely_____in nature?

-Variable Cositng - Variable

The big difference between absorption and variable costing is that?

Abosorption includes fixed moh in the unit cost where variable costing doesnt.

uses traditional income statement. For cogs, take product cost per meal by number of units sold, For operating expenses take sales commision per unit times unit sold during moth + marketing and admin expenses.

Abosrption method

In ________some of the fixed moh remains trapped on the balance sheet as part of the cost inventory?

Absorption

required by gaap an irs?

Absorption

______income is higher than varibale costing income?

Absorption costing

defers the fixed manufacturing overhead costs in the units of edning inventory. These costs will not be expensed until they are sold, Deferring these fixed moh costs to future increases first months absorption costing income?

Absorption costing

Another benefit to variable costing?

Another benefit is Unit cost of product will not be affected by the number of units produced during the period.(it also provides incentives for better inv. Management than absoorption costing.

If sales volume increases, revenue and variable cost increase with it at same rate along with contribution margin, all fixed costs shown _____the contribution margin will not change as a result of changes in volume?

Below

includeds a variable cogs, contribution margin, and fixed moh section?

Contribution statement

If units sold is greater than units produced then inventory levels ____ and variable costing income is greater than abosrption costing income?

Decrease

When inventory levels _______ operating income will be greater under variable costing than absorption.(occurs with traditionals during recessions and also when they are in the process of switiching to lean operations.)?

Decrease

expenses all fixed moh in the current period regardless of the amount of inventory produced?

Variable costing

isnt effected by inv. Fluctuations making it better as a performance evaluator?

Variable costing

shows managers exactly how much extra cost will be incurred every time a unit is made and doesnt make a fixed moh cost for each unit like absoption?

Variable costing

Wen inventory levels increase operating income will become greater under _______ costing than it is under _____________( common for traditional manufacturers during economic growth.

_- Absorption costing - Variable Costing

Higher operating income is common under?

absorption costing.

If units produced is greater than units sold then inventory levels increase and?

absorption income is greater than variable costing income.

Operating income will only be the same on both statements when?

all the units produced during period are also sold during that period resulting in no change in inventory levels, for sercice and merchers, operating income will always be the same regardless of the income statement format used.

If a company switiches to lean practices, short run absorption based absorption based operating income will?

decline

Never use contribution margin income statement for?

external purposes.

For income statement of second month, cogs is complicated, you must?

look at how many units didnt get sold in first month and multiply that number by that first moths per unit cost, then subtract total sold in 2nd month from total not sold in 1st month to get value of units sold in 2nd month, take that value and multiply it by per unit cost to get that months units sold and add that to beginning inventory cost of previous moth for cogs for second month.

More cost is expensed under absorption costing than under variable costing, leading to a?

lower net income under absorption costing.

Formula used to reconicle income suggests that operating income under absortion costing will be?

lower than it is under variable costing.

Contirbution margin statement is good because?

managers see which costs change with fluctuations in volume.

For contribution margin statemnts all 3 companies will have same operating income if and only iff?

manufacturers inventory levels remain the same. And for retailers all cogs is variable.

More inventory=?

more operating income.

Benefit to variable costing is that it?

only assigns only variable manufaccturing costs to each unit of product. ( allows you to see how much additonal manufcaturing cost will be incurred every time another unit is produced.

Fixed expenses are subtracted from contribution margin to get ?

operating income.

Unit cost is used to?

record the value of inventory on the balance sheet and record cogs on the income statment when the inventory is sold.

Contribution Margin income statement order?

sales revenue, Less variable expenses which is variable cost of good, and variable operating expenses, Then you come to contribution margin, less fixed expenses fixed moh and fixed oeprating expenses, to come to operating income.

For manufacturers costing systems will yield different results for operating income when inventory levels increase or decline, so they can easily reconcile the difference between the 2 income figures using _________ formulas.

the difference in operating income

Variable and absorption costing don't apply to manufacturers and servicers since?

they don't have moh or make anything. But they still use it for internal purposes since cost behavior is interpretable.

Operating income wont always be the same between 2 costing systems for manufactures and only will if? .

they sell exactly what they produce during the period

Abosrption costing income is less than variable costing operating income because?

they were less than units sold for the month

Total fixed cost formula is?

total mixed operating cost- total variabel cost, you take the highest price point avalable for mixed cost spot and multiply variable cost per unit by the highest spot on the units produced for total variable costs, then subtract that number from total mixed cost to get the answer.

Keys for variable costing?:

treasts all fixed moh costs as operating expensis in period incurred instead of treating fixed moh as an inventoriable product cost, only for internals, better for decision making since it shows additonal cost of one more unit(variable cost per unit, better for performance evaluation since there is no incentive to build unnecesary inv, will result in diff operating income than absorption costing for manufacturers whose inventory levels increase or decrease form the previous period.

Only difference between absortion costing and variable costing is the?Under variable costing, fixed moh is expensed immediately as a period cost, and under absorption costing fixed moh becomes part of the inventoriable product cost of each unit which isent expensed until the inventory is sold.

treatment of fixed moh and the timing with which its expensed:

Absorption costing operating income exceeds variable costing income, because?

units produced were greater than units sold

For operating cost equation use?

variable cost per unit x total fixed costs