Managerial Accounting Test 2 Review Chapters 2

Managerial Accounting Test 2 Review Chapters 2 - Managerial...

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Managerial Accounting Test 2 Review Chapters 2, 11 and 12 Chapter 2 Part 2 During the Accounting Period when goods are sold, the product costs flow from finished- goods Inventory into COGS, an expense account. Fixed Manufacturing Overhead: The Key Difference in Methods o Absorption (full) Costing- applies all manufacturing-overhead costs to manufactured goods along with direct-material and direct-labor costs. o Variable (direct) Costing- applies only variable manufacturing overhead to product cost along with direct material and direct labor costs. o The distinction between these two methods is the timing at which fixed manufacturing overhead becomes an expense. Variable costing consider fixed overhead a period expenses and expenses it immediately as it occurs, therefore it doesn’t appear on the schedule of COGS but instead goes straight to the income statement. Absorption costing inventories fixed overhead with other product cost ( for direct material, direct labor, and variable overhead), therefore it first appears on the schedule of COGS until it is transferred to the income statement as part of COGS in the accounting period during which the manufactured goods are sold. Absorption Costing Income Statements o Cost of Goods Sold expense for each year is determined by multiplying the year’s sales by the absorption-manufacturing cost (DM+DL+ F and V OH) cost per unit. o The only period expenses are the selling and administrative expenses. o There is no deduction of fixed-overhead costs as a lump-sum period expense at the bottom of each income statement, because fixed-overhead expenses are included in the COGS on absorption costing income statements. Variable Costing Income Statements o Highlights the separation of variable and fixed costs. o Shows contribution margin, which is the amount of sales revenue remaining after covering all variable costs, to put towards covering fixed costs and profit.
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o Manufacturing expense (DM+DL+VOH) per unit are subtracted from Sales revenue (# units sold x price) each year. o Fixed manufacturing overhead first appears on the income statement and is not included in COGS sold. Fixed manufacturing overhead is subtracted as a lump-sum period expense at the bottom of the income statement each year. Any cost # of units produced. Any revenue in # of units sold. Reconciliation of Income under Absorption and Variable Costing o Absorption and Variable costing will eventually equal out, but may differ in periods of varying production. o If you have no change in inventory from year 1 to year 2, beginning and ending inventories are the same because actual production and sales are the same. Absorption and variable costing will be equal. o
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This note was uploaded on 08/08/2011 for the course ACCT 3613 taught by Professor Cooper during the Spring '11 term at Arkansas.

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Managerial Accounting Test 2 Review Chapters 2 - Managerial...

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