Midterm 2 Study Guide Below is a list of some of the things you should definitely be familiar with for Midterm 2. It is not intended to be a complete list. Rather, this should be used a supplement to the studying you were otherwise doing. Chapter 7 Under variable costing, only those manufacturing costs that vary with production quantity (output) are included as product costs. This would typically include direct materials, direct labor, and the variable portion of manufacturing overhead (V-MOH). Unlike in absorption costing (i.e., everything we did in Midterm 1), fixed manufacturing overhead (F-MOH) is treated as a period expense that goes straight to the income statement rather than flow into WIP, FG, and COGS. You should have a very clear understanding of the differences in these costing systems. You should be able to do the following: separate total manufacturing cost into it's V-MOH and F-MOH components (recall: y = a + bx). We did this on the last midterm too. calculate unit costs under both variable and absorption costing prepare a contribution margin income statement under variable costing and a regular income statement using absorption costing o Remember, under variable costing we have all variable costs (inventory related and variable S&A expense) "above the line" and both fixed S&A expense as well as fixed inventory costs "below the line." The “line” is the contribution margin. o Total sales (revenue) will be the same in both income statements o NET INCOME MAY NOT BE THE SAME UNDER VARIABLE AND ABSORPTION COSTING If production > sales: inventories increase and absorption costing net income is higher If production = sales: inventory levels stay the same and both net income figures are the same If production < sales: inventories decrease and variable costing net income is higher Reconcile absorption costing net income to that under variable costing (the difference is the difference... [continues]
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