AFM102 Chapter Notes - Chapter 8: Cash Flow, Total Absorption Costing, Earnings Before Interest And Taxes

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viridianleopard866

15 Feb 2017

School

University of Waterloo

Department

Accounting & Financial Management

Course

AFM102

Professor

Jie Joyce Tian

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Document Summary

Chapter 8: variable costing: a tool for management. Variable costing (direct costing or marginal costing): a costing method that includes only variable manufacturing costs - dm, dl, and variable moh - in the cost of a unit of product. Fixed manufacturing overhead cost deferred in inventory: the portion of the fixed manufacturing overhead cost of a period that goes into inventory under the absorption costing method as a result of production exceeding sales. Treats all manufacturing costs as product costs, regardless of whether they are variable or fixed. Fixed moh is a period cost, like selling and administrative expenses. Income comparison of absorption and variable costing: under absorption costing, if there is ending inventory then fixed moh will be carried forward as a balance sheet account (fixed manufacturing overhead cost deferred in inventory) Effect of changes in production on operating income. Oi (operating income) is not affected by changes in production under variable costing.

Related Questions

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

crimsontiger86

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

beigecoyote968

e following information applies to the questions displayed below.]

Diego Company manufactures one product that is sold for $72 per unit in two geographic regionsâthe East and West regions. The following information pertains to the companyâs first year of operations in which it produced 43,000 units and sold 38,000 units.


Variable costs per unit:
Manufacturing:
Direct materials	$	22
Direct labor	$	14
Variable manufacturing overhead	$	3
Variable selling and administrative	$	5
Fixed costs per year:
Fixed manufacturing overhead	$	774,000
Fixed selling and administrative expenses	$	346,000

The company sold 28,000 units in the East region and 10,000 units in the West region. It determined that $170,000 of its fixed selling and administrative expenses is traceable to the West region, $120,000 is traceable to the East region, and the remaining $56,000 is a common fixed cost. The company will continue to incur the total amount of its fixed manufacturing overhead costs as long as it continues to produce any amount of its only product.

Difference of Variable Costing and Absorption Costing Net Operating Incomes
Variable costing net operating income (loss)
Add: Fixed manufacturing overhead cost deferred in inventory under absorption costing
Absorption costing net operating income (loss)	$34,000

erinsea-lion623

AFM102 Chapter Notes - Chapter 8: Cash Flow, Total Absorption Costing, Earnings Before Interest And Taxes

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