ACCT 2102 - Exam 3

In absorption costing,

Variable and Fixed MOH are treated as product cost attached to inventory until sold

In Variable costing,

Variable MOH treated as product costs where as Fixed MOH is treated as a period cost and is expensed in full during the period incurred

How do Absorption and Variable costing differ?

In absorption costing, variable and fixed MOH are treated as product costs. In variable costing, variable MOH is treated as a product cost, whereas fixed MOH is treated as a period cost. Selling & Administrative (S&A) expenses are treated as period costs

Absorption Unit Product Cost =

Direct Materials + Direct Labor + Variable MOH + (Total Fixed MOH /Units Produced)

Variable Unit Product Cost =

Direct Materials + Direct Labor + Variable MOH

Variable costing uses a _______ Income Statement

Contribution Format

Absorption costing uses ___ Income Stamtent

Traditional Format

How to calculate NOI in Variable Costing?

Sales - Variable Expense = Contribution Margin; Contribution Margin - Fixed Expense = NOI

How to calculate NOI in Absorption Costing?

Sales − COGS = Gross Margin; Gross Margin − S&A Expenses= NOI

Segment Margin =

Segment Contribution Margin − Traceable Fixed Expenses

Segment Margin represents …

the best gauge of long-run segment profitability

Tracable Fixed Costs arise becasue …

of the existence of a specific segment and WOULD disappear if the segment disappeared

Common Fixed Costs arise from …

the overall operation of the company and would NOT disappear if any particular segment were eliminate

Common Fixed Costs SHOULD NOT be allocated to segments because …

arbitrary allocations can make profitable segments look like losers and force managers to be held accountable for costs they cannot control.

Expected Cash Collections tracks …

cash inflows based on collection percentages across months plus any beginning accounts receivable

Direct Materials Budget calculates …

Raw Materials Needed for Production

MOH budget lists …

Variable MOH and Fixed MOH

Cash Budget is …

structured into four sections: cash receipts, cash disbursements, cash excess or deficiency, and financing

1st sequence of Master Budget is…

Sales Budget

2nd sequence of Master Budget is…

Production Budget

3rd sequence of Master Budget is…

Direct Materials Budget

4th sequence of Master Budget is…

Direct Labor Budget

5th sequence of Master Budget is…

MOH budget

Last sequence of Master Budget is…

Cash Budget