ACCT-241 Lecture Notes - Lecture 6: Financial Statement, Liability Insurance, Earnings Before Interest And Taxes

• School: American University
• Department: Accounting And Taxation
• Course: ACCT-241
• Professor: teto

Document Summary

Variable costing and segment reporting: tools for management. First, it explains how manufacturing companies can prepare variable costingincome statements, which rely on the contribution format, for internal decision making purposes. The variable costing approach will be contrasted with absorption costingincome statements, which are generally used for external reports. First, both income statement formats include product costs and period costs, although they define these cost classifications differently. Second, variable costing income statements are grounded in the contribution format. They categorize expenses based on cost behavior variable expenses are reported separately from fixed expenses. Absorption costing income statements ignore variable and fixed cost distinctions. Third, as mentioned in the paragraph above, variable and absorption costing net operating incomes often differ from one another. The reason for the difference always relates to the fact that variable costing and absorption costing income statements account for fixed manufacturing overhead differently.