BEC 15 Flashcards
When do you use variable and absorption costing methods
GAAP - requires absorption
Variable - Is used for internal or managerial purposes NOT permissible under GAAP
Direct, Prime and CM costing are all what type of costing
Variable
Full costing and GAAP costing are ll what type of costing
Absorption
Under direct costing all fixed costs are considered what
period costs
Selling costs are considered what under both absorption and variable
period costs - never charged to inventory
What are the assumptions that are made during a relevant range of time
Fixed costs in total and variable costs per unit will remain unchanged for the range time or period
All costs and revenue are linear
which costing method (variable, absorption, hybrid, process costing ) will have the lowest inventory value
Absorption
all of the others involve allocating some amount of fixed Overhead to inventory resulting in a higher inventory value
What is included in all product costs
Product costs = Direct Material, Direct Labor and Factory OH
DM & DL = prime costs
DL and Foh = Conversion costs
so total costs = DL,DM, Foh
or total costs = Prime costs + Factory oh
or total costs = Conversion costs + DM
Under the variable costing method - what costs are assigned to inventory
Variable factory overhead costs , DL and DM
Factory OH which includes variable factory oh is expensed immediately and is not included in inventory
What is another way of fining contributions margin
Sales price - prime costs - variable OH - variable sales and admin
20 - 6 -1 - 1 = 12
What is included in total production costs
Direct Labot, Direct materials, and overhead
So when you are looking for cost of ending inventory:
Begin Inventory \+ total production costs = Total manufacturing costs availible - COGS = Ending Inventory
What happens to net into,e under absorption costing
It is higher under absorption because more costs will be included in ending inventory which will decrease expense and increase net income
Under variable costing what happens
ALL fixed Overhead is expensed as incurred o net income is lower
What is ending inventory under absorption costing
It is higher than variable because it will include fixed OH
Is there a difference between selling and administrative expenses under adsorption and variable costing
No - they are the same under both systems
What is the formula for the predetermined variable rate
estimated variable overheard rates / estimated machine hours
This is predetermined at the beginning of the period therefore it uses estimated amounts
Under the direct costing method -(variable) where do you use fixed costs
It is used to calculate the Operating income, but not the Contribution margin
Sales
- variable COGS
- Variable SG &A
= CM
CM
-Fixed manufacturing
-Fixed SG&A
= Operating Income
what is the difference between normal and abnormal spoilage
normal is unavoidable spoilage due to the manufacturing process
This cost is ADDED to inventory account
Abnormal spoilage - this is unplanned spoilage due to a natural disaster.
It is deducted as a period expense
What is hi/low method
This is to identify the variable cost per unit to find the fixed cost per unit
(high cost - lowest cost) / (most units - least units) = cost per unit
variable costs will be the same when
fixed costs
they will be the same percentage of sales at any volume
Fixed cost remain constant regardless of sales volume
so at a lower sales volume - fixed costs will be a higher percentage pf sales than at a higher sales volume
How do you account for the difference between the amount of profit reported under variable costing and absorption costing
This is cut to a fixed manufacturing overhead being treated as a period cost for variable and product cost for adsorption
When inventories remain the same - both methods have the same income
When inventory levels increase - more fixed overhead is included in ending inventory instead of bowing deducted from income.
What are examples of fixed factory overhead
straightline depreciation
