Chapter%205%20-%20ACCT%202332%20-%20spring%202010

Chapter%205%20-%20ACCT%202332%20-%20spring%202010 - CHAPTER...

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CHAPTER 5 CHAPTER 5 Variable Costing Variable Costing
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Income Statement possibilities Income Statement possibilities The income statement we used in the financial accounting course, and is required by GAAP, looks like the following (it is called full costing income statement, and the reason is explained in the following slides):
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Income statement possibilities Income statement possibilities However, does it help the reader to estimate profit or costs in other sales levels? All costs (COGS, selling and administrative) are a mix of variable and fixed costs.
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Variable Costing Income Statement Variable Costing Income Statement Example Example We can build an income statement (for internal use) which separates variable from fixed costs (it is called variable costing income statement):
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Profit differences Profit differences However the profit under both types of income statements is the same only if units sold equal units produced.
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Profit differences Profit differences The difference comes from the treatment of fixed manufacturing overhead . Under Full Costing, it is included in inventory and expensed only when product is sold. Under Variable Costing, it is considered a period expense and expensed on the income statement in the period incurred. Only in a variable costing income statement we know what are total fixed costs for the period, because none of the fixed costs are added to inventory and deferred to the next period.
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Profit differences Profit differences The following information relates to Axar Products for fiscal 2010, the company's first year of operation: Units produced 30,000 Units sold 28,000 Selling price per unit $23 Direct material per unit $4 Direct labor per unit $3
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Chapter%205%20-%20ACCT%202332%20-%20spring%202010 - CHAPTER...

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