Chapter 6

Question 1

Unit Product Cost (Using Absorption Costing)

Answer 1

(Direct materials + direct labor + variable manufacturing overhead) + fixed manufacturing overhead = Unit Production Cost

Question 2

Unit Product Cost (Using Variable Costing)

Answer 2

(Direct materials + direct labor + variable manufacturing overhead) = Unit Production Cost

Question 3

Relation between production and sales, effect on inventory, relation between variable and absorption costing

Answer 3

Units produced = Units sold, No change in inventory, Absorption = Variable

Unites Produced > Units Sold, Inventory increases, Absorption > Variable

Unites Produced < Units Sold, Inventory decreases, Absorption < Variable

Question 4

Explaining Changes in Net Operating Income

Answer 4

Variable costing is only affected by changes in unit sales, not by the number of units produced. Generally, when sales go up/down, net operating income goes up/down.

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.

Question 5

Net Income (with traceable fixed costs)

Answer 5

Sales - Variable Costs - Traceable Fixed Costs - Common Fixed Costs = Net Income

Segment Margin - Common Fixed Costs = Net Income

Question 6

Segment Margin

Answer 6

Contribution Margin - Traceable Fixed Costs = Segment Margin

Question 7

Which costing method (absorption or variable) do GAAP and IFRS require and is subsequently adopted for internal reporting as well?

Answer 7

Absorption

Question 8

Net Income (Variable Costing)

Answer 8

(Number of units sold x contribution margin per unit) - total fixed expenses = Net income

Question 9

Net Income (Absorption Costing)

Question 10

COGS