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Unformatted text preview: Chapter 7 Homework QUESTIONS: 7-1 Absorption and variable costing differ in how they handle fixed manufacturing overhead. Under absorption costing, fixed manufacturing overhead is treated as a product cost and hence is an asset until products are sold. Under variable costing, fixed manufacturing overhead is treated as a period cost and is expensed on the current period’s income statement. 7-2 Selling and administrative expenses are treated as period costs under both variable costing and absorption costing. 7-3 Under absorption costing, fixed manufacturing overhead costs are included in product costs, along with direct materials, direct labor, and variable manufacturing overhead. If some of the units are not sold by the end of the period, then they are carried into the next period as inventory. When the units are finally sold, the fixed manufacturing overhead cost that has been carried over with the units is included as part of that period’s cost of goods sold 7-4 Absorption costing advocates argue that absorption costing complies with matching, GAAP and required for tax purposes. 7-5 Advocates of variable costing argue that fixed manufacturing costs are costs that are incurred to have the capacity to make products during a particular period and should be charged against that period. This provides better data for CVP analysis and predicting the future. EXERCISES 7-1 Direct Materials Rp100 Direct Labor 320 Variable Manufacturing Overhead 40 Fixed Manufacturing overhead (Rp60,000 / 250) 240 Absorption costing unit product cost Rp700 Direct Materials rp100 Direct Labor 320 Variable Manufacturing Overhead...
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- Spring '10
- Fixed Manufacturing, NOI Production