ACC 117 Lecture Notes - Lecture 25: Earnings Before Interest And Taxes, Fixed Cost, Income Statement

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26 Nov 2020

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Charlie Kent

ACC 117

Summer 2017

Introduction to Anthropology

Income Statements:

○ Variable Costing – Contribution

■ + Sales Revenue

■ – Variable Expenses (DM, DL, Var. MO, Var. Selling/Admin)

■ = Contribution Margin

■ – Fixed Expenses (Fixed MO, Fixed Selling / Admin

■ = Net Operating Income / Loss

■ Variable Costing Income Statement = VARIABLE & FIXED

○ Absorption Costing – Traditional

■ + Sales Revenue

■ – Cost of Goods Sold (DM, DL, Var. MO, Fixed MO)

■ = Gross Margin

■ – Selling / Admin Expenses (Variable & Fixed)

■ = Net Operating Income / Loss

■ Absorption Costing Income Statement = MANUFACTURING &

SELLING/ADMIN

Reconciling The Differences of Net Incomes Between Absorption & Variable Costing

○ Fixed Manufacturing Overhead is INCLUDED in Product Cost

■ If units are unsold at end of period, then fixed manufacturing overhead cost

attached to the units are carried to the inventory account and deferred to a

future period

○ Units Produced > Units Sold

■ Absorption Net Income > Variable Net Income

● Because some of the Fixed Manuf. Overhead is deferred in Ending

Inventory on the balance sheet

○ Units Produced < Units Sold

Absorption Net Income < Variable Net Income

● Because deferred Fixed Manuf. Overhead from a previous period is

released into the current period’s income statement

Segmented Income Statement: Traceable / Common Fixed Costs

○ Common Fixed Cost – Supports entire company (Salary of CEO)

○ Traceable – Directly traced to a segment

○ Traceable should be traced to a specific segment, while Common should not

○ Segment Margin

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Document Summary

Fixed expenses (fixed mo, fixed selling / admin. Variable costing income statement = variable & fixed. Cost of goods sold (dm, dl, var. Selling / admin expenses (variable & fixed) Absorption costing income statement = manufacturing & Reconciling the differences of net incomes between absorption & variable costing. Fixed manufacturing overhead is included in product cost. If units are unsold at end of period, then fixed manufacturing overhead cost attached to the units are carried to the inventory account and deferred to a future period. Absorption net income > variable net income. Overhead from a previous period is released into the current period"s income statement. Segmented income statement: traceable / common fixed costs. Common fixed cost supports entire company (salary of ceo) Traceable directly traced to a segment. Traceable should be traced to a specific segment, while common should not. Contribution format (sales variable = cm fixed = segment margin) Includes costs that are caused by the segment.

Related Questions

QUESTION# 3 Zhou Inc. has the following cost data for its past year of operations. Zhou Inc. produces tables and sells them for $150 each. You must show all your work in order to receive all the points available.

$$/ Per unit

Variable Costs:

Direct Materials (DM) $25

Direct Labour (DL) $20

Variable Mfâg Overhead $ 5

Variable Selling & Admin $10

Total Variable costs $60

Fixed Costs:

Fixed Mfâg Overhead $360,000

Fixed Selling & Admin $200,000

Total Fixed Costs $560,000

Unit data

Beginning Inventory 0

Units produced 12,000

Units sold 10,000

Required:

1) Calculate the unit cost per table under Variable Costing.

2) Calculate the unit cost per table under Absorption Costing.

3) Prepare a Contribution Margin format Income Statement using Variable Costing.

4) Prepare a Traditional format income statement using Absorption Costing.

5) Explain why the operating incomes were not the same under the different cost flow assumptions? And reconcile the difference in operating income.

Bell Company manufactures and sells a single product. Cost datafor the product follow:


Variable costs perunit:
Direct materials	$	3
Direct labor		12
Variable factory overhead		3
Variable selling andadministrative		3

Total variable costsper unit	$	21

Fixed costs permonth:
Fixed manufacturingoverhead	$	120,000
Fixed selling andadministrative		166,000

Total fixed cost permonth	$	286,000

The product sells for $48 per unit.Production and sales data for May and June, the first two months ofoperations, are as follows:

	Units Produced	Units Sold
May	24,000	20,000
June	24,000	28,000

Income statements prepared by theaccounting department, using absorption costing, are presentedbelow:

	May		June
Sales	$	960,000	$	1,344,000
Cost of goodssold		460,000		644,000

Gross margin		500,000		700,000
Selling andadministrative expenses		226,000		250,000

Net operatingincome	$	274,000	$	450,000

Required:

1.	Determine the unit product cost under absorption costing andvariable costing.

		Unit Product Cost
Absorption costing
Variablecosting

2.	Prepare contribution format variable costing income statementsfor May and June. (Input all amounts as positive valuesexcept losses which should be indicated by a minussign.)

Variable Costing Income Statement
	May	June
(Click toselect)SalesFixed manufacturing overheadVariable cost of goodssoldNet operating income (loss)Contribution marginFixed selling andadministrative expensesVariable selling and administrativeexpenses	$	$

Variableexpenses:
(Click toselect)SalesContribution marginNet operating income (loss)Variablecost of goods soldFixed selling and administrative expensesDirectmaterialsFixed manufacturing overhead
(Click toselect)Contribution marginSalesFixed selling and administrativeexpensesFixed manufacturing overheadNet operating income(loss)Variable selling and administrative expensesDirectmaterials

Total variableexpenses

(Click toselect)Gross marginContribution margin

Fixed expenses:
(Click to select)Variableselling and administrative expensesFixed manufacturingoverheadDirect materialsContribution marginSalesNet operatingincome (loss)Variable cost of goods sold
(Click to select)Fixedselling and administrative expensesVariable cost of goodssoldDirect materialsVariable selling and administrative expensesNetoperating income (loss)Contribution marginSales

Total fixedexpenses

Net operating income(loss)	$	$

3.	Reconcile the variable costing and absorption costing netoperating incomes. (Loss amounts and amounts to be deductedshould be indicated with a minus sign.)

Reconciliation of Variable Costing and Absorption Costing NetOperating Incomes
	May	June
Variable costing netoperating income (loss)	$	$
Add (deduct) fixedmanufacturing overhead cost deferred in (released from) inventory under absorption costing

Absorption costingnet operating income (loss)	$	$

scarlettortoise69

Denton Company manufactures and sells a single product.
Cost data for the product are given below:

Variable costs per unit:

Direct materials $7
Direct labor $10
Variable manufacturing overhead $5
Variable selling and administrative $3
Total variable cost per unit $25

Fixed costs per month:

Fixed manufacturing overhead $ 315,000
Fixed selling and administrative $ 245,000
Total fixed cost per month $ 560,000
The product sells for $60 per unit.

Production and sales data for July and August, the first two months of operations, follow:
Units Produced Units Sold
July 17,500 15,000
August 17,500 20,000

The company’s Accounting Department has prepared absorption costing income statements for July and August as presented below:

July August
Sales $900,000 $1,200,000
Cost of goods sold $600,000 $800,000
Gross margin $300,000 $400,000
Selling and administrative expenses $290,000 $305,000
Net operating income $10,000 $95,000

Required:

1. Determine the unit product cost under absorption costing and variable costing.

2. Prepare contribution format variable costing income statements for July and August.

3. Reconcile the variable costing and absorption costing net operating income figures.
*July/August
Variable costing net operating income (loss)
Add/Deduct fixed manufacturing overhead cost deferred in/released from
inventory under absorption costing
Absorption costing net operating income/loss

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ACC 117 Lecture Notes - Lecture 25: Earnings Before Interest And Taxes, Fixed Cost, Income Statement

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