Management and Organizational Studies 3370A/B Chapter Notes - Chapter 8: Variable Cost, Total Absorption Costing, Income Statement

• School: Western University
• Department: Management and Organizational Studies
• Course: Management and Organizational Studies 3370A/B
• Professor: Bill Dawson

Document Summary

Variable costing: a tool for management- chapter 8. Relationship between absorption and variable costing operating incomes. Absorption costing operating income > variable costing operating income* Absorption costing operating income < variable costing operating income. Relationship between production and sales for the period. *operating income is higher under absorption costing, since fixed manufacturing overhead cost is deferred in inventory under absorption costing as inventories increase. Income is only affected by changes in unit sales, not by the number of units produced: absorption costing. Income is influenced by changes in unit sales and units of production: net operating income can be increased simply by producing more units even if those units are not sold. Impact on fixed costs on profits emphasized: variable versus absorption costing, absorption costing. Fixed manufacturing costs must be assigned to products to properly match revenues and costs: variable costing. Fixed manufacturing costs are capacity costs and will be incurred even if nothing is produced.