# ch7 - Ch 7 Variable vs Absorption Costing Different Costs...

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Unformatted text preview: Ch 7 Variable vs Absorption Costing Different Costs for different purposes Ch 7 VC:AC Managerial Accounting ADM2341 1 Variable • classify costs by behaviour (VC vs FC) • inventory contains variable production costs only (dm + dl + oh) • also called “contribution” costing • income a function of sales Ch 7 VC:AC Managerial Accounting ADM2341 2 Absorption • classify costs by function (manufacturing • • then selling and admin) inventory contains variable and fixed production costs income a function of sales and production Ch 7 VC:AC Managerial Accounting ADM2341 3 1 Variable Absorption Sales less V.COGS: BB +V.COGM -EB = V.COGS + VAR S/A Total VC = Contribution Margin - FIX MNF - FIX S/A =NI Sales less COGS: BB +COGM -EB COGS = Gross Margin -VAR S/A -FIX S/A = NI Ch 7 VC:AC Managerial Accounting ADM2341 4 RECONCILIATION OF REPORTED NET INCOME NI(AC) vs NI(VC): equals the difference in the change in fixed costs in inventory in the AC statement. If inventory levels are RISING: then, NI(AC) > NI(VC) If inventory levels are FALLING: then, NI(AC) < NI(VC) Ch 7 VC:AC Managerial Accounting ADM2341 5 2 ...
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ch7 - Ch 7 Variable vs Absorption Costing Different Costs...

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