AFA 200 Week 11 MH

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 to products, including direct materials, direct labor, variable manufacturing overhead, and fixed manufacturing overhead.

Contribution Margin Statement

An income statement that organizes costs by behavior (fixed vs. variable) rather than by function, focusing on how much revenue contributes to fixed costs and net income.

Gross Margin

The difference between sales revenue and the cost of goods sold, indicating how much money is made before accounting for selling and administrative expenses.

Net Income

The total profit of a company after all expenses, taxes, and costs have been deducted from total revenue.

Period Costs

Costs that are not tied to the production of goods and are expensed in the period they are incurred, such as selling and administrative expenses.

Manufacturing Overhead

Indirect costs associated with manufacturing that cannot be traced directly to a product, including both variable and fixed components.

Fixed Costs

Costs that do not change with the level of production or sales, such as rent and salaries.

Variable Costs

Costs that vary directly with the level of production, such as materials and labor.

Income Statement

A financial statement that reports a company's revenues and expenses over a specified period, ultimately leading to net income or loss.

ASPE

Accounting Standards for Private Enterprises; a set of accounting standards in Canada that provides guidelines for the preparation of financial statements.

IFRS

International Financial Reporting Standards; a set of accounting standards that are used internationally to ensure transparency and consistency in financial reporting.

Reconciliation of Income

The process of explaining the differences between net income reported under different accounting methods, such as variable costing and absorption costing.

Fixed Manufacturing Overhead

The total fixed costs incurred in manufacturing, which do not vary with production levels and are absorbed into product costs under absorption costing.

Direct Materials Cost

The cost of the raw materials that are directly traceable to the manufactured product.

Direct Labour Cost

The cost of labor directly involved in the manufacturing of a product.

Revenue Recognition

The accounting principle that determines when revenue should be recognized and recorded in financial statements.

Variable Costing Income Statement (Short COGS Section)

An income statement format under variable costing that lists variable costs in the cost of goods sold section, focusing solely on variable manufacturing costs.

Variable Costing Income Statement (Long COGS Section)

An income statement format under variable costing providing detailed breakdowns of variable costs like direct materials, direct labor, and variable overhead in the cost of goods sold.

Absorption Costing Income Statement (Short COGS Section)

An income statement format under absorption costing that includes all manufacturing costs (fixed and variable) in the cost of goods sold, leading to a different an operating income.

Absorption Costing Income Statement (Long COGS Section)

An income statement format under absorption costing detailing individual components of manufacturing costs including direct materials, direct labor, variable overhead, and fixed overhead in the COGS.

Comparison of Operating Income (Variable vs. Absorption Costing)

Operating income may differ between variable and absorption costing due to the treatment of fixed manufacturing overhead; variable costing treats it as a period cost, while absorption costing includes it in product costs.

Reconciliation of Variable and Absorption Costing Incomes

The process of adjusting the difference in net income from variable costing to absorption costing by accounting for fixed manufacturing overhead costs that are deferred or released from inventory.

Beginning and Ending Inventories (Variable vs. Absorption Costing)

These inventories are calculated differently in variable and absorption costing, with absorption costing including fixed manufacturing overhead, while variable costing includes only variable costs.