Chapter 20 - 1-120-120Variable Costing for Management...

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Unformatted text preview: 1-120-120Variable Costing for Management AnalysisStudent Version1-220-21Describe and illustrate reporting income from operations under absorption and variable costing.20-21-320-3Absorption CostingAbsorption costingis required under generally accepted accounting principles for financial statements distributed to external users.11-420-4For internal use in decision making, managers often use variable costing.Variable Costing11-520-5Assume that 15,000 units are manufactured and sold at a price $50.11-620-6Exhibit 1Absorption Costing Income Statement11-720-7Note in Exhibit 2 that the variable selling and administrative expenses are deducted from the manufacturing margin to yield the contribution margin.1Contribution Margin1-820-8Exhibit 2Variable Costing Income Statement11-920-9Income from Operations When Units Manufactured Exceed Units SoldAssume that in the preceding example only 12,000 units of the 15,000 units manufactured were sold. Examine Exhibit 3 and you will see that income from operations using variable costing is $40,000 while absorption costing provides an income of $70,000.11-1020-10Units Manufactured Exceed Units Sold(continued)Exhibit 5Exhibit 311-1120-11Exhibit 5Exhibit 3Units Manufactured Exceed Units Sold11-1220-12Income from Operations When Units Manufactured Are Less than Units SoldAssume that 5,000 units of inventory were on hand at the beginning of a period, 10,000 units were manufactured during the period, and 15,000 units were sold at $50 per unit....
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Chapter 20 - 1-120-120Variable Costing for Management...

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