Test 2 Flashcards
Contribution approach
-internal tool
-separates cost into variable/fixed
high low method
-separates mixed costs
-gives average to predict future
Cost high - cost low/ high - low
variable costing
-contribution
-only manufacturing cost that vary with output are treated as product cost
-FMOH treated as period cost
-reported as an expense on income statement
-taken immediately to IS
absorption costing
-traditional
-treats all manufacturing cost as product cost
-allocates a portion of FMOH cost to each unit of product
-Only when sold they go to IS
Salaries and Administrative
-always period cost
-reported on IS as incurred
Absorption Vs Variable
-account for fixed MOH differently
traditional format
Revenue
(COGS)
Gross Margin
(Salaries/Administrative)
Net Operating Income
Contribution format
Revenue
(Variable Cost)
Contribution Margin
(Fixed Cost)
Net Operating Income
advantage of variable/contribution
-CVP Analysis
-explaining changes in net operating income
-supporting decision making
Explaining changes in NOI (adv variable)
-number of units produced does not affect NOI
-sales go up/down profits follow
supporting decision making (adv variable)
-correctly identifies additional variable cost incurred to make one more unit
-emphasized impact of fixed cost on profit
Traceable fixed cost
-fixed cost incurred because of existence of a segment
common fixed cost
-fixed cost that are traceable to one segment may be a common cost of another segment
TFC/CFC
-fixed cost that are traceable to one segment may be a common cost of another segment
Activity Based Costing
-designed for internal management
-non manufacturing/manufacturing costs may be assigned to products but only on a cause and effect bias
-some manufacturing cost may be excluded from product cost
-multiple pre determined overhead rates
