ACCT 102 Ch 21 SG

absorption costing

reporting the costs of direct materials, direct labor, and FOH under cost of goods manufactured

variable costing

cost of goods manufactured only includes variable manufacturing costs; direct material, direct labor, and variable FOH; fixed FOH not included

manufacturing margin

excess of sales over variable cost of goods sold; sales - variable cost of goods sold

contribution margin

excess of manufacturing margin over variable selling and admin expenses; manufacturing margin- variable selling admin expenses

units manufactured = units manufactured

no change; absorption = variable

units sold < units manufactured

increase in inventory; absorption > variable

units sold > units manufactured

decrease in inventory; absorption < variable

management uses of variable costing and absorption costing

uses for decisions on controlling costs, pricing products, planning production, and analyzing market segments; variable for short-term analysis, absorption for long-term analysis

how variable costing can be used to analyze market segments

short-term analysis of market segments

variable costing in service businesses

cost is classified as a fixed or variable cost according to how it changes relative to an activity base