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