Chapter 5 & 6

Question 1

Absorption Approach (definition)

Answer 1

A costing approach that considers all indirect manufacturing costs to be product costs that become an expense in the form of manufacturing cost of good sold only as sales occur

Question 2

Contribution Approach (definition)

Answer 2

A method of internal reporting that emphasizes the distinction between variable and fixed costs for the purpose of better decision making

Question 3

Four popular markup formulas

Answer 3

1. Variable Manufacturing Costs
2. Total Variable Costs
3. Total Manufacturing Costs
4. Full costs

Question 4

Target Costing

Answer 4

Taking a product’s market price as given and determining the maximum cost the company can spend to make the product and still achieve the desired profitability

Question 5

Target cost per unit:

Answer 5

the average total unit cost over the product’s life cycle