ch9 final slides spring 08

ch9 final slides spring 08 - Inventory Costing and Capacity...

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9 - 1 Inventory Costing Inventory Costing and Capacity and Capacity Analysis Analysis Chapter 9 Chapter 9
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9 - 2 Beginning Inventory Production Sales/ Cost of Goods Sold Ending Inventory Units Costs + - = Costs Flows and Matching A deferred Cost
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9 - 3 Inventory Costing Choices: Absorption Costing – product costs are capitalized; period costs are expensed Variable Costing – variable product and period costs are capitalized; fixed product and period costs are expensed Throughput Costing – only Direct Materials are capitalized; all other costs are expensed
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9 - 4 Distinguishing Variable costing from Absorption costing
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9 - 5 Inventory-Costing Methods The difference between variable costing and absorption costing is based on the accounting treatment of fixed manufacturing overhead.
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9 - 6 Variable Costing Direct Materials Variable Factory Labor Variable Overhead Work in Process Inventory
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9 - 7 Variable Costing Work in Process Inventory Finished Goods Inventory Cost of Goods Sold Income Summary Fixed Factory Mfg. Overhead
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9 - 8 Absorption Costing Direct Materials Variable Factory Labor Variable Overhead Work in Process Inventory Fixed Factory Mfg. Overhead
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9 - 9 Absorption Costing Work in Process Inventory (Variable and Fixed Mfg. Costs) Finished Goods Inventory Cost of Goods Sold Income Summary Fixed Costs to COGS when sold
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9 - 10 Income Statement effects under Absorption costing and Variable costing.
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9 - 11 Comparative Income Statements Variable Costing Absorption Costing Revenues Revenues Variable Cost of Goods Sold Cost of Goods Sold Beginning Inventory Beginning Inventory Add: Variable Product Costs Add: Variable Product Costs Fixed Product Costs Cost of Goods Available for Sale Cost of Goods Available for Sale Less: Ending Inventory Less: Ending Inventory Variable Cost of Goods Sold Cost of Goods Sold Variable Period Costs Contribution Margin Gross Margin Fixed Product Costs Variable Period Costs Fixed Period Costs Fixed Period Costs Operating Income Operating Income
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9 - 12 Differences in Income Operating Income will differ between Absorption and Variable Costing The amount of the difference represents the amount of Fixed Product Costs capitalized as Inventory under Absorption costing vs. expensed as a period cost under Variable Costing
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9 - 13 Comparative Income Effects Variable Costing Absorption Costing Are fixed product costs inventoried? No Yes Is there a production-volume variance? No Yes Are classifications between variable and fixed costs routinely made? Yes Infrequently
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9 - 14 Comparative Income Effects Variable Costing Absorption Costing How do changes in unit inventory cost affect operating income if…? Production = Sales Equal Equal Production > Sales Lower Higher Production < Sales Higher Lower
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9 - 15 Comparative Income Effects Variable Costing Absorption Costing What are the effects on cost- volume-profit (for a given level of fixed costs and a given contribution margin per unit?
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ch9 final slides spring 08 - Inventory Costing and Capacity...

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