Ch 6 Slides - 7-lVariable Costing:A Tool for ManagementChapter SixLearning Objective 1Quick Check/Which method will produce the highest values

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Unformatted text preview: 7-lVariable Costing:A Tool for ManagementChapter SixLearning Objective 1Quick Check /Which method will produce the highest values forwork in process and finished goods inventories?a Absorption costing,b. Variable costing.c They produce ihe same values for theseinventories.d ll depends.Unit Cost ComputationsHarvey Company produces a single productwith the following information available:Number of units produced annually 25,000Variable cosls per unit:Direct materialq direct labor,and variable mfr. overhead $ 10Selling & admini$rative expenses t 3Fixed co*s per year:Manufacturing overhead $150,000Selling & adminigrative expenses t 100,000VariableVariable Setling and Admrnrstrative ExpensesFixed S€lljng sd Administsative EpemsQuick Check /Which rnelhod will produce the highest values forwork in process and finished goods [email protected] costing.b. Variable costing.c. They produce the same values fortheseinventories.d. lt depends .Unit Cost GomputationsUnit product cost is determined as follows:Under absorption costing, selling andadministrative expenses arealways treated as period expenses anddeducted from revenue as incurred.DiFctnabriats, diFct labor,znd Yariabl,s mfig- ovddreidFixed f,t- ovcrhead($'150,0d1 + 25,dto unis)Unit prcdqct sstAbsrption Va raableCoeling CodingI$10610stoA1g7-2Learning Objective 2Absorption CostingAbsorption CostingSales (20.000 x 930) ------5600.000Les cod of goods Fld:Beginning inventory S -Add COGM (25,000 x S15) 400.000Goods available for Eie 400.000Ending inventory (5,000 x $.f6) 80,000 320,000Gro$ margin ,BO.OO0Les slling E admin. expVariable (20rm0 r S3) S 60,000Fixed 100.000Net operating income160.000-S izo"oooLearning Objective 3paAbsorption and VariableLet's assume the following additionalinformation for Harvey Company.. 20,000 units were sold during the year at a price of$30 eachr There were no units in beginning inventoryNow, let's compute net operatingincome using both absorptionand variable costing.?sVariable Costingvariablemufacluringcost3 onty.Goods sEilabl. tor sleLes ending inwdtory [5,fi]0 rVadable col of goodE $ldV.ri.ble -lling t admini#aliEerp€n=s (20,000 x 93)Cqtibutim m.rginLes tixed erpen*s:Manufaoturing owrhsedSclling &.dmini*rtiw crp!n*sl,let oFEting in6ore7-3Comparing the Two Methods!rry-?ri!! t9L!t.9-Variable mtg cods S200,000F;xed mtg cos 12n,040$ 320!000Vrd.ble costingVariable fifg cos $200,000Fixed mfg cods$ 200.0006 50000 I -30 00c-s80,0(}0.3\-\\s sorjR b- \\rso ooo$ 5d 00o s 150,000I 250,000150,000_!_19!,4!0t 250,000150,000$400,000Comparing the Two MethodsWe can reconcile the difference betweenabsorption and variable income as follows:ariable costing net operatng incomeFixed mfg. overhead costsdeferred in inventory...
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This note was uploaded on 09/08/2010 for the course BUS 21 at San Jose State University .

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Ch 6 Slides - 7-lVariable Costing:A Tool for ManagementChapter SixLearning Objective 1Quick Check/Which method will produce the highest values

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