# tf3 - Topic Focus 3 Variable and Absorption Costing Top ic...

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Topic Focus 3 ©petekarici/iStockphoto Topic Focus 3 – Variable and Absorption Costing Topic Focus: Variable and Absorption Costing Learning Objectives 1. Explain the difference between variable costing and absorption costing. 2. Calculate operating income under variable costing and absorption costing. Summary of End of Chapter Material Difficulty: E = Easy, M = Moderate, D = Difficult Bloom: K = Knowledge, C = Comprehension, AP = Application, AN = Analysis, S = Synthesis, E = Evaluation AACSB : A = Analytic, C = Communication, E = Ethics AICPA FN: DM = Decision modeling, RA = Risk Analysis, M = Measurement, R = Reporting, RS = Research, T = Technology AICPA PC: C = Communication, I = Interaction, L = Leadership, P = Professional demeanor, PM = Project Management, PS = Problem Solving and Decision Making, T = Technology IMA: BA = Business applications, BP = Budget Preparation, CM = Cost Management, DA = Decision Analysis, PM = Performance Measurement, R = Reporting, SP = Strategic Planning Item L. O. Difficulty Level Minutes to Complete Bloom’s Taxonomy AACSB AICPA FN AICPA PC IMA Ethics Coverage GUIDED UNIT PREPARATION 1 1 E 3 K A R PS CM 2 1 E 3 K A R PS CM 3 2 E 1 K A R PS CM 4 2 M 3 C A M PS CM 5 2 M 3 K A M PS CM 6 2 M 3 C A M PS CM EXERCISES T3-1 1, 2 M 10 AP A M PS CM T3-2 1, 2 M 10-12 AP A M PS CM T3-3 1, 2 D 10 AN A M PS CM T3-4 2 D 10-12 AN, E A M PS CM T3-5 1, 2 M 15-20 AP A M PS CM T3-6 1, 2 M 15-20 AP A M PS CM T3-7 1, 2 M 30-35 AP A M PS CM PROBLEMS T3-8 1, 2 D 35-40 AP, AN A M PS CM T3-9 1, 2 M 30-35 AP, AN A M PS CM T3-10 2 M 15 AP, AN A M PS CM T3-11 2 D 25-30 AP, AN, E A M PS CM CASES T3-12 1, 2 D 35-40 AN, E A M PS CM T3-1

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Solutions for Davis & Davis, Managerial Accounting , 2 nd ed. SOLUTIONS TO QUESTIONS 1. Product costs: direct materials, direct labor, variable and fixed overhead. Period costs: selling and administrative expenses 2. Product costs: direct materials, direct labor, variable overhead. Period costs: fixed overhead, selling and administrative expenses 3. Contribution margin format 4. Income under variable costing is higher than under absorption costing when the number of units sold is greater than the number of units produced. 5. Change in the number of units in inventory fixed overhead per unit 6. Overproducing for the sole purpose of reducing fixed overhead cost per unit becomes ineffective under variable costing. T3-2
Topic Focus 3 – Variable and Absorption Costing SOLUTIONS TO EXERCISES Exercise T3-1 Per Unit Sales \$5,000,000 \$50 Variable costs Direct materials 1,500,000 15 Direct labor 800,000 8 Manufacturing overhead 300,000 3 Selling 200,000 2 Total variable costs 2,800,000 28 Contribution margin 2,200,000 \$22 Fixed costs Manufacturing overhead 1,200,000 Selling 700,000 Total fixed costs 1,900,000 Operating income \$300,000 T3-3

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Solutions for Davis & Davis, Managerial Accounting , 2 nd ed. Exercise T3-2 a. Direct materials \$200,000 Direct labor 150,000 Variable overhead 50,000 Fixed overhead 100,000 Total cost \$500,000 Units produced  25,000 Cost per unit \$20 Units sold  20,000 COGS \$400,000 b.
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