1) When will profits reported under variable and absorption costing differ? How can we reconcile the profits reported under the two approaches? Profits reported under variable and absorption costing will differ when inventory increases or decreases during the year. The difference involves the timing with which fixed manufacturing overhead becomes an expense. Under variable costing‚ fixed overhead is expensed immediately as it is incurred. Under absorption costing‚ fixed overhead is inventoried
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MARGINAL AND ABSORPTION COSTING Marginal costing is a technique in which production units are valued at marginal cost of production and fixed costs are written off as period costs. It follows that‚ stocks are valued using only the variable cost of production whereas fixed costs are treated as relating to the period and must be taken off in total. Management accounting is based on marginal costing. TERMINOLOGY USED. Gross contribution: Is the difference between sales value and variable costs
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Variable costing and absorption costing are the two most commonly used methods of inventory costing for manufacturing companies. The inventory method of variable costing takes place when total direct and indirect variable manufacturing costs are included within inventoriable costs. Fixed manufacturing costs however‚ are considered costs of the period under variable costing. The next method of inventory costing‚ absorption costing‚ includes all variable manufacturing costs as well as fixed manufacturing
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PAPER – 5 : ADVANCED MANAGEMENT ACCOUNTING QUESTIONS Marginal Costing Vs. Absorption Costing 1. During the current period‚ ABC Ltd sold 60‚000 units of product at Rs. 30 per unit. At the beginning for the period‚ there were 10‚000 units in inventory and ABC Ltd manufactured 50‚000 units during the period. The manufacturing costs and selling and administrative expenses were as follows: Total cost Rs. Beginning inventory: Direct materials Direct labour Variable factory overhead Fixed factory overhead
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Accounting for Income Tax Under IFRS‚ Income Tax is taxes based on taxable profits‚ and taxes that are payable by a subsidiary‚ associate or joint venture on distribution to investors. U.S GAAP defines income tax as all domestic federal‚ state and local taxes based on income‚ including foreign income taxes from an entity’s operations that are consolidated‚ combined or accounted for under the equity method‚ both foreign and domestic. In IFRS‚ the guidance about accounting for income taxes is in
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Absorption Costing vs. Variable (Direct) Costing Absorption cost systems are widely used to prepare financial accounts. These systems are designed to absorb all production costs (variable or fixed) into costs of units produced. Absorption costs techniques allow manufacturing costs to be traced and allocated into product costs. There are different types of absorption costing systems: job order costing‚ process costing‚ and ABC costing. In job order costing‚ costs are assigned to products in batches
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Marginal Costing vs Absorption Costing Marginal Costing and Absorption Costing are methods which are often used to prepare profit statements‚ value inventory and assist in pricing decisions. The methods have some notable differences‚ which can be reconciled though. Absorption Costing absorbs all manufacturing/production costs into inventory valuation. These costs include direct material‚ direct labour‚ direct expenses‚variable production overheads‚ as well as fixed production overheads. On the
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regulatory and compliance concerns. As Thomas Hogan‚Vignette president and chief executive officer‚ told Computerworld‚ the move to adopt ECM technology is driven by “two fundamental business catalysts”: 1. How to render more value in terms of greater revenues or stronger loyalty 2. The need to understand how information flows within the enterprise because of compliance requirements At the Core This article Discusses the importance of developing a return on investment (ROI) model for large technology
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the four alternative as directed and aiming at 16% after tax return and tax rate of 38%. Identification of Issues and related alternatives: • Debt to Equity Ratio of 1.23 more than 1 reveals that more than half of assets are financed by debt. • $3.6 million required for repairs of hull before 2013. • Gross profit of 60% has not increased much over past three years it will affect operating income if there is a decline in sales. • Operating profit of .23% in 2012 seems to decline from 2011 of .26%
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Exam1 - KEY 1. What is the primary disadvantage of the corporate form of organization? Name at least two advantages of corporate organization. The primary disadvantage of the corporate form is the double taxation to shareholders of distributed earnings and dividends. Some advantages include: limited liability‚ ease of transferability‚ ability to raise capital‚ and unlimited life. 2. Evaluate the following statement: Managers should not focus on the current stock value because doing so will lead
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