Textbook Notes (362,796)
Canada (158,054)
Accounting (242)
ACCT 2230 (113)
Chapter 8

Chapter 8 Managerial Accounting Notes

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University of Guelph
ACCT 2230
Elliot Currie

Chapter 8 Accounting NotesVariable Costing A Tool for ManagementAbsorption costing is generally used for external financial reports Variable costing is preferred by some managers for internal decision making and must be used when an income statement is prepared in the contribution formatNormally absorption and variable costing produce different figures for operating incomethe difference can be quite largeAbsorption Costing treats all manufacturing costs as product costs regardless if fixed or variableVariable Costing only those manufacturing costs that vary w output are treated as product costsSellingAdministrative Expense Are rarely treated as product costs Always treated as period costs expenses and deducted from revenues as incurredIncome Comparison of AbsorptionVariable Costing The absorption costing income statement makes no distinctions between fixed and variable costs Not good for CVP computations Variable costing approach to costing units of products blends very well with the contribution approach to the income statement therefore variable costing data is useful for CVP computations Extended Comparison of Income DataEffect of Changes in Production on Operating Income Variable costing approach operating income isnt affected by changes in production In absorption costing operating income changes with productionChoosing a costing method Some think absorption costing can lead to misinterpretations and faulty decisions because of shifting manufacturing overhead costs between periods can be confusing Under variable costing essentially revenue drives operating income Under absorption costing both revenue and production drive operating incomeCVP AnalysisAbsorption Costing Absorption costing can be used for both internalext
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