Chapter 6

Question 1

What are included in inventory costs when using Absorption Costing and Variable Costing?

Answer 1

Absorption Costing

• all product costs
• DM, DL, Variable OH, Fixed OH

Variable Costing

• only variable costs
• DM, DL, Variable OH
• Fixed OH gets expensed in PERIOD INCURRED

Question 2

Which is required by GAAP/IFRS and which is used for internal purposes only regarding Absorption Costing and Variable Costing?

Answer 2

Absorption Costing

• required by GAAP/IFRS
• external purposes

Variable Costing

• internal purposes
• not required by GAAP/IFRS

Question 3

Income Statement format for Absorption Costing?

Answer 3

Sales
-(COGS) ----product costs, FC and VC
---------------
 Gross Margin
-(Operating Expense) ----period costs, VC and FC
-----------------------
NI

Question 4

Income Statement format for Variable Costing?

Answer 4

Sales
-(VC) ----------product and period costs
----------
 Contribution Margin
-(FC)
----------------
NI

Question 5

A ___ is any part or activity of an organization about which a manager seeks cost, revenue or profit data

Answer 5

Segment

Question 6

Explain a Segment Margin in your own words

Answer 6

Is like the Net Income of individual departments within a company

Point where costs can be traced to each department (common fixed costs not taken out)