ACC 113 Chapter Notes - Chapter 2: Total Absorption Costing, Income Statement, Contribution Margin

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amaranthjellyfish619

5 Jan 2021

School

Tunxis Community College

Department

Accounting

Course

ACC 113

Professor

Lardie

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Document Summary

Use of absorption costing for internal decision making can lead to less-than-optimal decisions. E. g. unemployed executive offered services to manufacturing company for only per year in salary and bonus of 50% of any increase in net income generated for year. Reviewing absorption costing income statement for previous year, units produced was 10 000 although there was the capacity to produce 20 000. No choice but to use absorption reporting for external reporting as it is required by aasb and. Internal decision making, variable costing is often best. If income used to evaluate performance of manger or segment, it"s logical that measure of income should reflect managerial effort and skill. If sales decrease, with on changes in production or other factors, logical that income should decrease like in variable costing. Variable costing removes impact of changing production levels on income.

Related Questions

The Dorset Corporation produces and sells a single product. The following data refer to the year just completed:


Beginning inventory		0
Units produced		34,000
Units sold		25,900
Selling price per unit	$	482
Selling and administrative expenses:
Variable per unit	$	16
Fixed per year	$	362,600
Manufacturing costs:
Direct materials cost per unit	$	240
Direct labor cost per unit	$	56
Variable manufacturing overhead cost per unit	$	34
Fixed manufacturing overhead per year	$	578,000

Assume that direct labor is a variable cost.

Required:

a. Compute the unit product cost under both the absorption costing and variable costing approaches.

b. Prepare an income statement for the year using absorption costing.

c. Prepare an income statement for the year using variable costing.

d. Reconcile the absorption costing and variable costing net operating income figures in (b) and (c) above.

viridianworm389

QUESTION# 3 Zhou Inc. has the following cost data for its past year of operations. Zhou Inc. produces tables and sells them for $150 each. You must show all your work in order to receive all the points available.

$$/ Per unit

Variable Costs:

Direct Materials (DM) $25

Direct Labour (DL) $20

Variable Mfâg Overhead $ 5

Variable Selling & Admin $10

Total Variable costs $60

Fixed Costs:

Fixed Mfâg Overhead $360,000

Fixed Selling & Admin $200,000

Total Fixed Costs $560,000

Unit data

Beginning Inventory 0

Units produced 12,000

Units sold 10,000

Required:

1) Calculate the unit cost per table under Variable Costing.

2) Calculate the unit cost per table under Absorption Costing.

3) Prepare a Contribution Margin format Income Statement using Variable Costing.

4) Prepare a Traditional format income statement using Absorption Costing.

5) Explain why the operating incomes were not the same under the different cost flow assumptions? And reconcile the difference in operating income.

EXERCISE 6-9 Variable and Absorption Costing Unit Product Costs and Income Statements [L06-1, L06-2, L06-3] Walsh Company manufactures and sells one product. The following information pertains to each of the company's first two years of operations: $25 $15 Variable costs per unit: Manufacturing: Direct materials Direct labor ..... Variable manufacturing overhead ...... Variable selling and administrative ........ Fixed costs per year: Fixed manufacturing overhead ................. Fixed selling and administrative expenses ........ $5 $250,000 $80,000 During its first year of operations, Walsh produced 50,000 units and sold 40,000 units. During its second year of operations, it produced 40,000 units and sold 50,000 units. The selling price of the company's product is $60 per unit. Required: 1. Assume the company uses variable costing: a. Compute the unit product cost for Year 1 and Year 2. b. Prepare an income statement for Year 1 and Year 2. 2. Assume the company uses absorption costing: a. Compute the unit product cost for Year 1 and Year 2. b. Prepare an income statement for Year 1 and Year 2. 3. Explain the difference between variable costing and absorption costing net operating income in Year 1. Also, explain why the two net operating income figures differ in Year 2.

ACC 113 Chapter Notes - Chapter 2: Total Absorption Costing, Income Statement, Contribution Margin

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