Managerial Accounting-chapter 19

Cost elements that are included when computing unit cost under variable costing?

1. Direct materials 2. Direct labor 3. Variable overhead

Cost elements that are included when computing unit cost under Absorption Costing:

1. Direct materials 2. Direct labor 3. Variable overhead 4. Fixed overhead

Contribution Margin Report

A performance report that excludes fixed expenses and net income.

Controllable Costs

An effective cost control practice that holds managers responsible for costs that they have the power to determine or at least markedly affect the amount incurred.

Full Costing

Another name for Absorption Costing, which assumes that products absorb all costs incurred to produce them.

Direct or Marginal Costing

Another name for Variable Costing

Uncontrollable Costs

Costs that are not within the manager's control or influence.

What are the limitations of absorption costing?

External reporting and for income tax reporting but not used for internal purposes.

What are the limitations of variable costing?

Internal reporting and business decisions but not used for external reporting and tax reporting,

Variable Costing

Only costs that change in total with changes in production level are included in product costs, excluded are fixed costs.

Contribution margin equation

Sales - Variable Expenses

Gross margin equation

Sales-Cost of Sales

Absorption Costing

Under the traditional costing approach, all manufacturing costs are assigned to products. Those costs consist of direct materials, direct labor, variable overhead and fixed overhead.

Contribution Margin Income Statement

Variable Costing Income Statement which excludes fixed expenses and net income.

Units produced are less than units sold is when

Variable costing income exceeds absorption costing income.

Units produced exceed units sold is when

Variable costing income is less than absorption costing income.

Contribution Format

When we separately report variable and fixed cost elements as an income statement in the _______________ format, it highlights the impact of each cost element for income.