Variable costing vs Absorption costing.

z. P2) High profits are the signal that consumers want more of the output of the industry.

21) Refer to the graph on the left. To maximize profits, this firm would produce:

c) proportion of total indirect cost assigned to the retail customer line and the business customer line:

7. Though numbers given in the cost data can not be contested, I would definitely contest the way total cost has been computed. The item 345 department operates within a large manufacturing facility that churns out number of other products too. Hence judging the profitability of item 345 on the basis of total cost is not practical.

3389. Marcye Co. manufactures office furniture. During the most productive month of the year, 3,500 desks were manufactured at a total cost of $84,400. In its slowest month, the company made 1,100 desks at a cost of $46,000. Using the high-low method of cost estimation, total fixed costs are:

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

The basic difference between absorption and variable costing relates to the handling of fixed manufacturing

Absorption Costing Versus Variable Costing 5 bsorption Costing Versus Variable Costing Absorption Method q1 q2 Year Year Period End Mar 31,'12 Jun 30,'12 2012 2011 Production Budget 25,000 50,000 125,000 100,000 Sales 2,500,000 2,500,000 10,000,000 10,000,000 Cost of Goods Sold 1,625,000 1,625,000 6,500,000 6,500,000 Gross Profit 875,000 875,000 3,500,000 3,500,000 Selling & Admin Exp 500,000 500,000 2,000,000 2,000,000 Net Income 375,000 375,000 1,500,000 1,500,000 Cost of Goods Sold Beg Inventory 650,000 650,000 650,000 650,000 Product Cost 1,625,000 3,250,000 8,125,000 6,500,000 Total 2,275,000 3,900,000 8,775,000 7,150,000 End Inventory 650,000 2,275,000 2,275,000 650,000 Cost of Goods Sold 1,625,000 1,625,000 6,500,000 6,500,000

d. Above the indifference or break-even point the increase in EPS for all equity plans is greater than debt-equity plans.

In determining the fixed costs per unit for the period for absorption costing (not needed for variable costing since the entire fixed cost is expensed as a cost of the month, not a cost of units), you spread the fixed costs across all the units made. Since production was increased substantially, the fixed cost per unit was reduced:

This is an excellent short case to introduce the managerial accounting issues related to the "joint cost" problem. Classic microeconomics argues unequivocally that attempts to assign cost to individual products in a "joint" set constitute a complete waste of time--"just maximize the total revenue over the batch." Like the comparable adage to "price so that marginal cost equals marginal revenue," the economists' advice about joint costing is certainly accurate, given the assumptions, but not particularly useful in practice. Most managerial accountants, including this author, believe that there are important managerial issues involved in accounting for joint cost in real companies. This case covers those issues for a real company.

Managers often assume that unit product costs are variable costs. This is a problem under absorption costing, since unit product costs are a combination of both fixed and variable costs. Under variable costing, unit product costs do not contain fixed costs. But despite these advantages, absorption costing must be used almost exclusively for external reporting purposes and it is predominant choice for internal reports as well. Absorption costing is also attractive to many accountants because they believe it better matches costs with revenues. Advocates of absorption costing argue

Under absorption costing, fixed manufacturing overhead costs are included in product costs, along with direct materials, direct labor, and variable manufacturing overhead. If some of the units are not sold by the end of the

The final type of cost that I will be talking about is Total Costs. Total cost describes the total economic cost of production which is made up of variable costs, which can change according

The absorption costing method identifies the importance of fixed costs involved in production, which is accepted by Inland Revenue as stock is not undervalued. It also shows less fluctuation in net profits in case of constant production but fluctuating sales.