Chapter 5
Variable Costing Income Statement
Contribution Income Statement
Traceable Costs
Costs that would be eliminated if the segment were eliminated; variable costs are ALWAYS CONSIDERED TRACEABLE; Fixed costs MAY BE TRACEABLE OR NOT.
Production > Sales
(Inventory Increases) Absorption Costing NOI is higher
Production = Sales
(No change in inventory) Absorption Costing NOI = Variable Costing NOI
Common Fixed Costs
A fixed cost that supports more than one business segment, but is not traceable to any one segment.
Segment
Any part or activity of an organization about which managers seek cost, revenue, or profit data.
To find Fixed Manufacturing Overhead per unit
Fixed Manufacturing Overhead divided by Number of units produced annually
Variable Costing
Only those manufacturing costs that vary with output are treated as product costs.
Under Absorption Costing
Product cost include ALL manufacturing costs. - DIRECT MATERIALS - DIRECT LABOR - VARIABLE MANUFACTURING OVERHEAD - FIXED MANUFACTURING OVERHEAD The following costs are Period Costs and are excluded from product costs. - VARIABLE SELLING AND ADMINISTRATIVE EXPENSES - FIXED SELLING AND ADMINISTRATIVE EXPENSES
Under Variable Costing
Product costs include only the variable manufacturing costs. - DIRECT MATERIAL - DIRECT LABOR - VARIABLE MANUFACTURING OVERHEAD The following costs are Period Costs and excluded from product costs. - FIXED MANUFACTURING OVERHEAD - VARIABLE SELLING AND ADMINISTRATION EXPENSES - FIXED SELLING AND ADMINISTRATIVE EXPENSES
Segment Margin
The Contribution Margin for a segment of a company minus the traceable fixed costs.
Absorption Costing Income Statement
Traditional Income Statement
Absorption Costing
Treats ALL manufacturing costs as product costs, regardless of whether they are variable or fixed.
Production < Sales
Variable Costing NOI is higher