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session5student - Commerce 354 Session 5 Variable Costing...

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Commerce 354 Session 5 Variable Costing
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OBJECTIVES Explain the difference between absorption net income (GAAP net income) and “variable costing” net income. Provide an example to illustrate how the computations differ for a manufacturing setting Use the same example to show how increases in inventory levels can be used to manipulate GAAP (absorption costing) net income Provide a second example to reinforce method (we may not cover this in class , but a solution will be provided on WebCt)
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I. Introduction to Variable Costing Traditional Income Statement Absorption Costing Revenues $ 3,000,000 -COGS -2,412,000 Gross Margin $588,000 SG&A Expenses -432,000 Operating Income $156,000 Variable Costing Income Statement Revenues $3,000,000 Variable Mf Costs 2,220,000 Variable Selling Costs 156,000 Contribution Margin $624,000 -Fixed Mfg Overhead 192,000 276,000 Operating Income 156,000 Selling price per CD = $25 Annual Fixed Costs Variable Costs = $10.5 DM; $5.00 DL; 3.00 MOH; Manufacturing OH $192,000 Fixed SGA $276,000 This example assumes sales = production = 120,000 packages
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I. Introduction to Variable Costing Inventories (Absorption Costing) Inventories (Variable Costing) What happened there?
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I. Introduction to Variable Costing
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session5student - Commerce 354 Session 5 Variable Costing...

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