ACC 202 Chapter Notes - Chapter 6: Total Absorption Costing, Fixed Cost, Variable Cost

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tanhyena210

16 Aug 2020

School

Ball State University

Department

Accounting

Course

ACC 202

Professor

Moudy

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Document Summary

Product costs: direct materials, direct labor, variable moh. Period costs: fixed moh, variable and fixed selling and administrative. Chapter 6: variable costing and segment reporting: tools for management. *will produce the highest values for work in process and finished good inventories. Under absorption costing, all production costs (variable and fixed) are included when determining unit product cost. Under variable costing, only the variable production costs are included in product costs. Variable costing noi + fixed moh deferred in inventory = absorption costing noi. Variable costing noi fixed moh released from inventory = absorption noi. Product costs: direct materials, direct labor, variable moh, and fixed moh. Period costs: variable and fixed selling and administrative expenses. Categorizes costs as variable and fixed so its much easier to use this income statement format for cvp analysis. Assigns fixed moh costs to units produced, a portion of fixed moh resides in inventory when units remain unsold.

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

EXERCISE 6-6 Variable and Absorption Costing Unit Product Costs and Income Statements [L06-1, L06-2] Lynch Company manufactures and sells a single product. The following costs were incurred during the company's first year of operations: Variable costs per unit: Manufacturing: Direct materials ............. Direct labor .............................. Variable manufacturing overhead .... Variable selling and administrative .......... Fixed costs per year: Fixed manufacturing overhead .......... Fixed selling and administrative ............. $300,000 $190,000 During the year, the company produced 25,000 units and sold 20,000 units. The selling price of the company's product is $50 per unit. Required: 1. Assume that the company uses absorption costing: a. Compute the unit product cost. b. Prepare an income statement for the year. 2. Assume that the company uses variable costing: a. Compute the unit product cost. b. Prepare an income statement for the year.

The Dorset Corporation produces and sells a single product. The following data refer to the year just completed:


Beginning inventory		0
Units produced		34,000
Units sold		25,900
Selling price per unit	$	482
Selling and administrative expenses:
Variable per unit	$	16
Fixed per year	$	362,600
Manufacturing costs:
Direct materials cost per unit	$	240
Direct labor cost per unit	$	56
Variable manufacturing overhead cost per unit	$	34
Fixed manufacturing overhead per year	$	578,000

Assume that direct labor is a variable cost.

Required:

a. Compute the unit product cost under both the absorption costing and variable costing approaches.

b. Prepare an income statement for the year using absorption costing.

c. Prepare an income statement for the year using variable costing.

d. Reconcile the absorption costing and variable costing net operating income figures in (b) and (c) above.

viridianworm389

ACC 202 Chapter Notes - Chapter 6: Total Absorption Costing, Fixed Cost, Variable Cost

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