Contribution Margins for Lewis Company

With the use of Traditional Absorption Costing (TAC) which means Wilkerson Company is now only put the costing of direct labor and material in place. As we can

Sweeteners and packaging are a variable cost to Coca-Cola because their use is directly proportional to the amount of product produced. If the unit cost of a variable cost item increases, the contribution margin will decline. This will lead to a decline in net income unless the company can increase its selling price, increase the number of units it sells, or reduce other costs.

Appendix 2: Estimation of Direct material, Direct labor and Variable Costs for the New Budget

How I can see from the Exhibit the intracompany sales of hours give me a contribution margin from $ 76,116.50, which means that they are covering this amount of the fixed cost.

Launch advertising costs Incremental SG&A expenditures Incremental costs associated with Light Product E.C. Light Market Assumed Market for ligth beer (b/s) *1 Market share for Mountain Man Light Barrels sold Mountain Man Light Contribution of Light Product *2 Net change in contribution *3 Discount

Abby Conroy was tasked with calculating an effective quote for Breeland Ltd., she chose the activity based accounting costing system since it more accurately captures the related costs. A special order was placed by Breeland Ltd. with Ace Fertilizer Company. The did not plan to order more of this product in the future. Based on Ace’s policy, the special order included disposal costs for any used materials in the event no other orders existed for the unused materials at the time the Breeland contract was signed. Abby correctly calculated the total direct material and labor costs and accurately arrived at the indirect costs using the ABC method and used cost activity pools that make sense for the company and

The difference in a traditional income statement and a contribution margin income statement is how the variable and fixed costs are used. A contribution margin income statement in an income statement that shows all variable expenses to be deducted from sales. This, in turn, provides a contribution margin, and then all fixed expenses are subtracted to provide the net profit or loss (Accounting for Management, n.d.) . The contribution margin income statement uses the variable costing method (Basu, n.d.). Instead of being part of the product costs, the fixed manufacturing costs are included in the overhead costs. Behavioral structure of the business is the driving force for the contribution margin income statement (Sawyers, Jackson, & Jenkins,

The true variable costs to Beauregard Textiles include the Direct Labor, Material, Material Spoilage, and Direct Department Expense. By excluding those expenses not related to the production of T-30, we can calculate the contribution margin for Beauregard using unit sales price and unit variable cost. Contribution margin is a measurement of the profitability of a product and is an excellent management tool to help determine whether to keep or drop certain aspects of the business. A positive contribution margin means that the company should produce the product, a negative contribution margin means the company is likely to suffer from every unit it produces.

It is important to first understand what the specific product and period costs are in order to accurately compute the associated costs. It is known that bird feeders are being produced. In this case the product costs are: cedar, plastic, and indirect materials, factory worker labor, depreciation, utilities, and maintenance and repairs. For period costs they are as follows: shipping, sales commissions, office rent, advertising, liability insurance, office depreciation, office salaries. Once this is known then the variable cost per unit and contribution margin can be found.

For internal reporting purposes, absorption or variable costing approaches can be used. Absorption costing can be used to save additional costs of preparing reports since absorption costing must be used for external reporting purposes. For short-term planning, it is more appropriate to use variable costing approach because fixed costs do not change within a relevant range as a result of short-term

There are a couple of differences between the two methods that give us the different results. The first is that under absorption, the manufacturing expenses (fixed and variable) are included in the calculation of the gross profit. The selling expenses are then calculated after that. Under the contribution method the structure is to include the variable expenses in cost of goods sold (contribution margin) and then take out the fixed costs.

Over the years, many of our managers and higher officials have had trouble making business decisions due to the way our P&Ls were structured. We faced several challenges when trying to negotiate with our customers because we were unable to show a cost break down which took into account every aspect of the production process. Although, there are some advantages with the traditional costing approach, such as it aligns with general cost accounting principles, ease of implementation in companies that provide a specific product, it had several drawbacks, such as:

“In accounting, cost is defined as the cash amount given up for an asset. Cost includes all costs necessary to get an asset in place and ready for use” (Accounting Coach, 2015). Cost is considered as a significant aspect of corporate accounting work. Correct cost information is an important basis for business to make decisions. In fact, a number of companies are major pricing decisions, product mix and selection of technology and other cost information based on distorted. In addition, almost no other information to make management authorities are aware of a serious distortion of the product cost.

Both absorption and variable costing have a place in decision making. Accountants and decision makers need to understand the applications and limitations of the two techniques within the context of past, present, and future cost information needs. No matter which type of costing a firm uses, the firm’s total revenue must cover all costs – both

Income reporting is one major difference between these two costing approaches. Using absorption versus variable costing for the finished product will have different effects on profit margins as reported on the income statement. Absorption costing does not support CVP analysis because it essentially treats fixed manufacturing overhear as a variable cost by assigning a per unit amount of the fixed overhead to each unit production. Treating fixed manufacturing overhear as a variable cost can, lead to faulty pricing decisions and keep-or-drop decisions, and produce positive net operating income even when the number of units sold is less than the breakeven point. However, under the process described earlier, variable costing reports lower net income. Companies using the absorption method will not incur lower net revenue until they sell goods, which move the costs from inventory to cost of goods sold (Pong). Fixed expenditures are not figured in the cost of goods sold under the variable method, therefore the inventory is carried at a lesser value than the full absorption method. Even though a company uses absorption costing for financial reporting, it is not prevented from reporting internally for management purposes under a variable costing method. The difference is that variable costing is often considered to be an enhanced way for management to regulate financial manufacturing decisions. The variable costing approach would be much more appropriate for