Bmgt221 Midterm 2 Study Guide

Topics: Variable cost, Costs, Management accounting / Pages: 12 (2887 words) / Published: Apr 10th, 2013
Managerial Accounting Midterm 2
Chapter 6
Three key concepts: 1) Both income statement formats (Variable and absorption) include product and period costs, they just define these cost classifications differently. 1) Variable costing income statements are grounded in the contribution format. They categorize expenses based on cost behavior – variable costs are reported separately from fixed costs. Absorption costing income statements ignore variable and fixed cost distinctions. 3) Variable and absorption costing net income figures often differ from one another. This is due to the fact that they account for manufacturing overhead differently.

Variable Costing * Only manufacturing costs that vary with output are treated as product costs. Usually includes DM, DL and the variable portion of manufacturing overhead. Fixed overhead is treated as a period cost and expensed in its entirety each period. Variable costing is sometimes referred to as direct or marginal costing. *Variable costing unit product cost=DM + DL + Variable Manufacturing Overhead *Variable cost of goods sold= (Variable production cost) x (Units sold) *The variable costing net operating income for each period can always be computed by multiplying the number of units sold by the contribution margin per unit and subtracting total fixed costs. Contribution Margin Per Unit Sold = Selling price per unit – (Variable production per unit + Variable selling and admin per unit)

Absorption Costing * Treats all manufacturing costs as product costs, regardless of whether they are variable or fixed. The cost of a unit consists of DM, DL and BOTH variable and fixed manufacturing overhead. Referred to as the full cost method. *First step is to determine unit product costs *Fixed manufacturing overhead cost per unit=fixed manufacturing overhead cost # of units produced -Sales are the same as variable costing **Even though sales are the same, net operating income (loss) can

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