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13 Dec 2019

Incremental analysis is an analytical approach that focuses only on those revenues and costs that will not change as a result of a decision. T or F

If the variable expense per unit decreases, and all other factors remain the same, the contribution margin ratio will increase. T or F

The total volume in sales dollars that would be required to attain a given target profit is determined by dividing the target profit by the contribution margin ratio. T or F

Under variable costing, fixed manufacturing overhead is treated as a product cost. T or F

Variable costing is more compatible with cost-volume-profit analysis than is absorption costing. T or F

Variable manufacturing overhead costs are treated as product costs under both absorption and variable costing. T or F

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Related questions

How to reply to the below Discussion response.

Managerial accounting provides internal managers the use ofaccounting to plan and control business operations(Pearsoncustom.com, n.d). The internal nature of managerialaccounting is opposite to financial accounting which is used inregards to external entities (investors, creditors and government).Management accounting focuses on the cost-benefit analysis tooperating procedures within an organization.

Associated with the two forms of accounting are two coststructures used in an income statement: absorption and variable.The two cost structures identify the cost of a product butabsorption costing includes the fixed manufacturing overhead.Variable costing identifies fixed manufacturing overhead as aperiod cost thus not including it in the price of a unit produced(EducationUnlocked, 2014). Absorption costing is typically utilizedin financial accounting for external entities. Variable costing istypically used in managerial accounting because they focus on onlyvariable costs which eliminate skewed results from fixed overheadin unused inventory. In the short-run managers don’t need toinclude fixed costs because they are regarded as sunk costs nomatter how many units are produced or sold.

A variable costing income statement generates a contributionmargin. The contribution margin reflects the sale price of aproduct less all variable costs (EducationUnlocked, 2014). The contribution margin gains insight into costs thatcan be calculated in units. The contribution margin can helpmanagers understand profit per unit based on the variable expensesincurred. As the contribution margin doesn’t include fixed expensesit can quickly identify if a company is going to be profited ableby subtracting the fixed expenses from the contribution margin.

Absorption and Variable Costing Comparisons Peachtree Companymanufactures peach jam. Because of bad weather, its peach crop wassmall. The following data have been gathered for the summer quarterof 2014: Beginning inventory (cases) 0 Cases produced 9,000 Casessold 8,200 Sales price per case $ 60 Direct materials per case $ 8Direct labor per case $ 9 Variable manufacturing overhead per case$ 3 Total fixed manufacturing overhead $ 320,000 Variable sellingand administrative cost per case $ 2 Fixed selling andadministrative cost $ 48,000 (a) Prepare a functional incomestatement for the quarter using absorption costing. (Round answersto the nearest dollar. Do not use negative signs with your answers,EXCEPT if you calculate a net loss.) Peachtree Company Functional(Absorption Costing) Income Statement For the Summer Quarter 2014Sales $Answer Cost of goods sold: Variable costs $Answer Fixedcosts Answer Goods available Answer Ending inventory Answer AnswerGross profit Answer Operating expenses: Variable selling andadministrative $Answer Fixed selling and administrative AnswerAnswer Net income (loss) $Answer (b) Prepare a contribution incomestatement for the quarter using variable costing. (Do not usenegative signs with your answers, EXCEPT if you calculate a netloss.) Peachtree Company Contribution (Variable Costing) IncomeStatement For the Summer Quarter 2014 Sales $Answer Variableexpenses: Manufacturing $Answer Selling and administrative AnswerAnswer Contribution margin Answer Fixed expenses: Manufacturingoverhead $Answer Selling and administrative Answer Answer Netincome (loss) $Answer (c) What is the value of ending inventoryunder absorption costing? (Round answer to the nearest wholenumber.) $Answer (d) What is the value of ending inventory undervariable costing? $Answer (e) The difference in the value of endinginventory in parts (c) and (d) is explained by the followingdifference between absorption and variable costing: Variablecosting treats all manufacturing costs as variable costs whileabsorption costing treats only variable manufacturing costs asvariable costs. Absorption costing treats fixed costs as periodcosts while variable costing treats fixed costs as product costs.Variable costing assigns only variable manufacturing costs toproducts while absorption costing assigns both variable and fixedmanufacturing costs to products. Absorption costing treats allmanufacturing costs as period costs while variable costing treatsonly variable manufacturing costs as period costs. Check Next

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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