Appendix 3A PPT

Cost Behaviour

The way in which a cost reacts to changes in the level of activity.

Variable Costing

A costing method that assigns only variable manufacturing costs to products, treating fixed manufacturing overhead as a period cost.

Absorption Costing

A costing method that assigns all manufacturing costs, including fixed manufacturing overhead, to products.

Contribution Margin Income Statement

An income statement format that separates variable and fixed costs to show contribution margin.

High-Low Method

A technique used to estimate variable and fixed costs based on the highest and lowest levels of activity.

Regression Analysis

A statistical method used to analyze the relationship between variables and predict costs based on data.

Account Analysis

An approach to analyzing cost behavior by classifying costs as variable, fixed, or mixed.

Learning Objectives

Goals to be achieved by the end of a chapter, encompassing key skills and knowledge.

Segment Reporting

Reporting financial results for different divisions or segments within a company to utilize contribution margin analysis.

Contribution Margin

Sales revenue minus variable costs, important for assessing profitability.

Variable Costing Income Statement (Short COGS Section)

An income statement format that includes only variable COGS, showing contribution margin and operating income.

Variable Costing Income Statement (Long COGS Section)

An income statement format that details all variable costs, including detailed COGS, leading to contribution margin.

Absorption Costing Income Statement (Short COGS Section)

An income statement format that includes all manufacturing costs in COGS, leading to gross profit.

Absorption Costing Income Statement (Long COGS Section)

An income statement format that details all manufacturing costs, both fixed and variable, in COGS for a comprehensive view.

Operating Income Comparison

The analysis of operating income under variable costing versus absorption costing, revealing differences due to fixed overhead treatment.

Reconciliation of Variable and Absorption Income

The process of identifying the differences in income between variable and absorption costing, typically due to fixed overhead allocation.

Beginning Inventory Calculation (Variable Costing)

Calculation of inventory value at the beginning of the period using only variable manufacturing costs.

Ending Inventory Calculation (Variable Costing)

Calculation of inventory value at the end of the period based on variable costs.

Beginning Inventory Calculation (Absorption Costing)

Calculation of inventory value at the beginning of the period including both fixed and variable manufacturing costs.

Ending Inventory Calculation (Absorption Costing)

Calculation of the inventory value at the end of the period under absorption costing, factoring in all manufacturing costs.