ACCT30210 Chapter Notes - Chapter 9: Total Absorption Costing, Income Statement, Opportunity Cost
Document Summary
The use of absorption costing for managers can create perverse incentives. Want to incentivize managers to make decisions that are in the best interest of the company. So the way we do accounting affects managerial behavior. *absorption costing = inventory costing method that absorbs all of the costs of production. So build up inventory to increase gross profit when using this method opposite of this: *variable costing (on the income statement) = revenues minus variable costs to get contribution margin. Marketing, operation, and accounting departments are involved in determining how many goods to produce. * carrying charge = opportunity cost of holding inventory (percentage) Charge not shown in external income statement. Acts as a penalty and kind of like an interest. When we use the throughput costing , the only manufacturing cost that is considered a product cost is direct materials . The rest of the costs (direct labor, variable moh, and fixed moh) are considered period costs.
