Prelim 3 Sheet_StudyGuide - Ch. 9-Inventory Costing-...

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Ch. 9-Inventory Costing - Contribution Margin =Revenue-VC Gross Margin =Revenue-COGS. Inventory costing : absorption costing (AC), variable costing (VC), throughput costing. Denominator level : theoretical capacity, normal capacity, master-bdgt capacity. Inventoriable Costs- All costs of a product that are regarded as assets when they are incurred and then become cost of goods sold when the product is sold. Variable Costing- Fixed manufacturing costs are costs of the period in which they were incurred. Only variable manufacturing costs are inventoriable. Also, direct non-manufacturing costs aren’t inventoriable. OI driven by unit level of sales. Absorption Costing(GAAP)- Fixed manufacturing costs and variable manufacturing costs are inventoriable. Inventory “absorbs” all manufacturing costs. Fixed S&A isnt inventoriable. As long as you build inventories, absorption cost income will be greater than variable cost income. Mgrs increase OI in AC by producing more units. OI driven by unit level of sales and production. X /# produced * # sold = cost used on income statement for inventoriable costs Norm Breakeven = Total FC/Unit CM Now BE =Total FC(Fixed MFG Cost Rate(BE Sales-Units Produced)/ Unit CM Reconciling Diffs. In Op Income= EI Units –BI Units * Budgeted Fixed Mfg. O/H Rate Throughput costing treats all costs except those related to direct materials as period costs. Only direct materials are inventoriable.In other words, the only var costs are direct materials. Throughput Contribution= Revenues-All direct material costs of the goods sold. Unit Price- Variable Costing doesn’t list Fixed Manufacturing Overhead; For absorption unit prices, use units produced, not sold. Capacity analysis : Based on available supply -theoretical (full efficiency all the time), practical (currently attainable), Based on demand -normal (avg. actual), bdgt (expected), excess Ch 10: Cost behavior - Assumptions : 1. Single cost driver explains all variation in TotCosts of cost obj 2. Cost behavior is linear over relevant range Cost Object Choice- could be variable w/ respect to one cost obj and fixed to another. Relevant Range-
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Prelim 3 Sheet_StudyGuide - Ch. 9-Inventory Costing-...

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