Ch 9 Flashcards
(31 cards)
How are fixed manufacturing costs accounted for under variable costing
Fixed manufacturing costs are excluded from Inventoriable
Costs
Are period costs
How does variable costing differ from absorption costing?
In one respect: how to account of fixed manufacturing costs
How are fixed manufacturing costs accounted for under absorption costing?
Fixed manufacturing costs are Inventoriable and become
Part of cost of goods sold in period when sales occur
The variable costing income statement is based on…
What is operating income driven by under variable costing?
Contribution margin format
Also operating income is driven by unit level sales
What is the format for the income stamens under absorption costing?
Income stamens follows gross margin format
What is operating income driven by under absorption costing?
Unit level production,
unit level of sales,
Denominator level used for assigning fixed costs
Why might managers build up finished goods inventory if they use absorption costing?
Managers can increase current operating income
By producing more units for inventory
Producing for inventory absorbs more fixed manufacturing
Costs into inventory and reduces cost expensed in
Period
2 ways in which throughput costing differ from variable costing and absorption costing?
Throughput costing treats all costs except direct materials
As period costs
Throughput costing results in lower amount of manufacturing
Costs being inventoried compared to variable and absorption
Costing
4 choices of capacity levels (in 2 categories) a company can use to compute budgeted fixed manufacturing cost rate?
Capacity supplied:
1 theoretical capacity
2 practical capacity
Output demanded:
3 normal capacity utilization
4 master budget capacity utilization
5 major factors managers consider in choosing the capacity level to compute budgeted fixed manufacturing cost rate?
1 effect on product costing + capacity management 2 effect on pricing decisions 3 effect on performance evaluation 4 effect on financial statements 5 regulatory/tax requirements
4 issues managers must take into account when planning capacity levels and for assigning capacity costs?
1 uncertainty of expected spending on capacity costs
2 demand for installed capacity
3 role of capacity related issues in non manufacturing areas
4 possible use of ABC techniques in allocating capacity costs
Inventoriable costs
All costs of a product that are regarded as
assets when Incurred
And expensed as cost of goods sold when product is sold
3 types of inventory costing methods
1 absorption costing
2 variable costing
3 throughput costing
Denominator-level capacity choice
Focuses on cost allocation base used to set budgeted
Fixed manufacturing cost rates
Variable costing
Method of inventory costing where all variable Manufacturing costs (direct and indirect) are included As Inventoriable costs
All fixed manufacturing costs are excluded from Inventoriable
Costs and treated as period costs
Absorption costing
Method of inventory costing where all variable and fixed manufacturing costs are included as Inventoriable costs
Example of absorption costing system
Job costing system
Relationship between cost of goods manufactured and cost of goods sold equation?
Beginning inventory + cost of goods manufactured
= cost of goods sold + ending inventory
Are fixed manufacturing costs inventoried?
Under absorption costing
Not under variable costing
Does variable cost and absorption costing have production volume variance?
Absorption costing has production volume variance
How do unit inventory levels affect operating income in variable costing an absorption costing?
VC. AC
Production = sales. =. =
Production>sales. Lower. Higher
Production<sales. Higher. Lower
What are the effects on cost-profit relationship (for a given level of fixed costs and a given contribution margin per unit) for variable costing?
Driven by unit level sales
What are the effects on cost-profit relationship (for a given level of fixed costs and a given contribution margin per unit) for absorption costing?
Driven by
1 unit level costing
2 unit level production
3 chosen denominator level
Throughput costing AKA Super-variable costing
Extreme for of variable costing where only direct material
Costs are included as Inventoriable costs
All other costs are period costs
