managerial accounting exam 2

What is included in product costs for variable costing?

DM, DL, and VMOH

What is included in product costs for absorption costing?

DM,DL,VMOH, and FMOH

Variable Costs Income Statement is the Contribution Format Income Statement:

Sales

-Variable costs(COGS and all other variable expenses)

=Contribution margin

-Selling and Admin expenses (period expense)

=NOI

Absorption Costing Income Statement is the Traditional Format Income Statement:

Sales

-COGS (product costs)

=Gross margin

-Selling and Admin expenses (period costs)

=NOI

If a company produces more units than it sells, Absorption costing will report:

A higher NOI because some of the fixed manufacturing overhead costs will be deferred in inventory = decreasing COGS

If a company produces less than it sells, absorption costing will report:

A lower NOI because prior period fixed manufacturing overhead costs will be released from inventory= increasing COGS

If a company produces the same number of units than it sells=

absorption and variable costing will report the same NOI

COGS=

Beginning Inventory + Purchases - Ending Inventory

Steps for ABC

1. define activities, activity cost pools, and activity measures

2. assign overhead costs to cost pools

3. calculate activity rates

4. assign overhead costs to cost objects using the activity rates and activity measures

5. prepare management reports

activity based management helps with:

• pricing and product mix decisions

• cutting costs

• planning and controlling activities

when performing differential analysis, remember the following:

• define the alternatives

• identify criteria for choosing among alternatives

• ignore irrelevant costs/benefits

• use differential analysis by focusing on future costs and benefits that vary among different alternatives

• ignore SUNK costs as they are always IRRELEVANT

• consider opportunity costs

a relevant cost or benefit must have the following

• a future costs

• differ among alternatives

Sunk costs

a cost that has already been incurred and cannot be recovered

opportunity costs

the potential benefits that may be missed out on when choosing one alternative over another