Ch 20-Variable Costing (1).ppt

Ch 20-Variable Costing (1).ppt - Chapter 20 Variable...

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Chapter Chapter 20 20 Variable Costing for Variable Costing for Management Analysis Management Analysis Financial and Managerial Accounting 13th Edition Warren Reeve Duchac
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1. Describe and illustrate reporting income from operations under absorption and variable costing. 2. Describe and illustrate the effects of absorption and variable costing on analyzing income from operations. 3. Describe management’s use of absorption and variable costing. Objectives Objectives Objectives Objectives
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Objectives Objectives Objectives Objectives 4. Use variable costing for analyzing market segments, including product, territories, and salesperson segments. 5. Use variable costing for analyzing and explaining changes in contribution margin as a result of quantity and price factors. 6. Describe and illustrate the use of variable costing for service firms.
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Two Costing Methods Two Costing Methods Used for external financial reporting Includes direct materials, direct labor, variable factory overhead, and fixed factory overhead as part of total product cost Absorption Costing Absorption Costing
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Two Costing Methods Two Costing Methods Variable Costing Variable Costing Used for internal planning and decision making Does not include fixed factory overhead as a product cost
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Absorption Costing Compared to Absorption Costing Compared to Variable Costing Variable Costing Variable Costing Absorption Costing Cost of Goods Manufactured Cost of Goods Manufactured Cost of Goods Manufactured Cost of Goods Manufactured Direct Direct Materials Materials Direct Direct Labor Labor Variable Variable Factory OH Factory OH Fixed Fixed Factory OH Factory OH Period Expense Period Expense
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DM DM Materials Work in Process Finished Goods Wages Payable DL DL Factory Overhead Cost of Goods Sold IM IM IL IL DM DM IM IM DL FOHA FOHA IL OFOH OFOH SOLD SOLD Materials Purchased Total Wages FOHA FOHA Variable Costing COGS COGS COGS COGS Flow of Manufacturing Costs Flow of Manufacturing Costs SOLD
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Cost Category Cost Category Inventoried Inventoried Under Under Variable Variable Costing? Costing? Inventoried Inventoried Under Under Absorption Absorption Costing? Costing? Direct Materials Yes Yes Direct Labor Yes Yes Variable F.O.H. Yes Yes Fixed F.O.H. No Yes Selling and Admin. No No Variable: Fixed Costs are not inventoriable, rather expensed in current period Variable Costs are inventoriable Absorption: Variable & Fixed Costs are inventoriable, treated as product cost Selling and Administrative: period costs under both methods
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Variable Costing Income Statement Sales (15,000 x $50) $750,000 Variable cost of goods sold: Variable cost of goods mfg. (15,000 x $25) $375,000 Less ending inventory 0 Variable cost of goods sold 375,000 Manufacturing margin $375,000 Variable selling and administrative expenses (15,000 x $5) 75,000 Contribution margin $300,000 Fixed costs: Fixed manufacturing costs $150,000 Fixed selling and administrative expenses 50,000 200,000 Income from operations $100,000 Units Manufactured Equal Units Sold Units Manufactured Equal Units Sold
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Sales (15,000 x $50) $750,000 Cost of goods sold:
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