Scribd Logo
Upload

Welcome to Scribd!

  • 11 views

    Acn 4

    Uploaded by

    Navidul Islam
    Variable costing and absorption costing are two methods for assigning manufacturing costs to inventory. Variable costing treats fixed overhead as a period cost, while absorption costing allocates fixed overhead to inventory. Segment reporting involves calculating margins and break-even points for individual business segments. The document provides examples of calculating unit product costs, preparing income statements under both costing methods, and determining break-even points for overall companies and business segments.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd

    Acn 4

    Uploaded by

    Navidul Islam
    11 views3 pages
    Variable costing and absorption costing are two methods for assigning manufacturing costs to inventory. Variable costing treats fixed overhead as a period cost, while absorption costing allocates fixed overhead to inventory. Segment reporting involves calculating margins and break-even points for individual business segments. The document provides examples of calculating unit product costs, preparing income statements under both costing methods, and determining break-even points for overall companies and business segments.

    Original Description:

    accounting math

    Original Title

    acn4

    Copyright

    © © All Rights Reserved

    Available Formats

    PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    Variable costing and absorption costing are two methods for assigning manufacturing costs to inventory. Variable costing treats fixed overhead as a period cost, while absorption costing allocates fixed overhead to inventory. Segment reporting involves calculating margins and break-even points for individual business segments. The document provides examples of calculating unit product costs, preparing income statements under both costing methods, and determining break-even points for overall companies and business segments.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    11 views3 pages

    Acn 4

    Uploaded by

    Navidul Islam
    Variable costing and absorption costing are two methods for assigning manufacturing costs to inventory. Variable costing treats fixed overhead as a period cost, while absorption costing allocates fixed overhead to inventory. Segment reporting involves calculating margins and break-even points for individual business segments. The document provides examples of calculating unit product costs, preparing income statements under both costing methods, and determining break-even points for overall companies and business segments.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 3

    Chapter 4: Variable Costing and Segment Reporting

    Variable costing: The costing method under which manufacturing costs vary with output are
    treated as product costs including direct materials, variable overhead and ordinarily direct
    labor but fixed manufacturing overhead is treated as a period cost and is expensed on the
    income statement as incurred.

    Absorption costing: The costing method under which all types of manufacturing costs vary
    with output are treated as product costs including direct materials, variable overhead and
    ordinarily direct labor but fixed manufacturing overhead is treated as a product cost and is
    expensed on the income statement as incurred.

    Traceable fixed cost: The fixed cost that is incurred for the existence of a segment- if the
    segment had never existed, the fixed cost would not have been incurred and if the segment
    were eliminated, the fixed cost would disappear. For example, the salary of a particular
    product’s manager, the maintenance cost of a building used for manufacturing a particular
    product.

    Common fixed cost: The fixed cost that supports the operations of more than one segment,
    but is not traceable in whole or part to any one segment. Even if a segment were entirely
    eliminated, there would be no change in a true common fixed cost. For example, the salary of
    the CEO of General Motors and the cost of the receptionist’s salary.

    Example 1: Given, selling price of a product is Tk.100000 per unit, per unit direct materials
    cost is Tk.19000, direct labor cost is Tk.5000 and variable manufacturing overhead cost is
    Tk.1000. Fixed manufacturing overhead is Tk.70000 per month, variable selling and
    administrative expense is Tk.10000 per unit and fixed selling and administrative expense is
    Tk.20000 per month. Other information is:
    January February March
    Beginning inventory 0 0 1
    Units produced 1 2 4
    Units sold 1 1 5
    Ending inventory 0 1 0

    Prepare variable costing income statement and absorption costing income statement.

    Solution:
    Variable cost per unit is Tk. (19000+5000+1000) = Tk.25000
    Variable costing income statement
    January February March
    Sales revenue (100000X1, 1, 5) 100000 100000 500000
    (-) variable cost of goods sold (25000X1,1,5) 25000 25000 125000
    (-) Variable selling and admin exp. (10000X1,1,5) 10000 10000 50000
    Contribution margin 65000 65000 325000
    (-) Fixed manufacturing cost 70000 70000 70000
    (-) Fixed selling and admin expense 20000 20000 20000
    Net operating income (25000) (25000) 235000

    1
    Absorption costing per unit product cost:
    January February March
    Direct materials cost 19000 19000 19000
    Direct labor cost 5000 5000 5000
    Variable manufacturing overhead cost 1000 1000 1000
    Fixed manufacturing overhead (70000/1,2,4) 70000 35000 17500
    Per unit total cost 95000 60000 42500

    Absorption costing income statement


    January February March
    Sales revenue (100000X1,1,5) 100000 100000 500000
    (-) Cost of goods sold (95000X1 for January, 60000X1
    For February and 60000X1+42500X4 for March) 95000 60000 230000
    Gross margin 5000 40000 270000
    (-) Selling and admin expense (variable+fixed) 30000 30000 70000
    Net operating income (25000) 10000 200000

    Problem 2: Sales revenue of Maxim Ltd. is Tk.500000, variable cost is Tk.230000, traceable
    fixed cost is Tk.171000, common fixed cost is Tk.85500. It assumes that 60% sales earn from
    business products and 40% sales comes from customer products. Traceable fixed cost of
    business products is Tk.90000 and of customer products is Tk.81000. Variable cost of
    business products is Tk.150000 and of customer products is Tk.80000. Determine break-even
    point sales for overall company, business products and customer products (segment
    breakeven).
    Problem 3: Given (Tk.)
    Selling price per unit 50
    Direct materials cost per unit 11
    Direct labor cost per unit 6
    Variable manufacturing overhead per unit 3
    Fixed manufacturing overhead 120000
    Variable selling and administrative cost per unit 4
    Fixed selling and administrative cost 70000
    Year 1 Year 2
    Beginning inventory 0 2000
    Units produced 10000 6000
    Units sold 8000 8000
    Ending inventory 2000 0
    a) Compute unit product cost for each year and prepare income statement under absorption
    costing.
    b) Compute unit product cost for each year and prepare income statement under variable
    costing.
    Problem 4: Given (Tk.),
    Company total Service G Service H
    Service revenue 1000000 400000 600000
    (-) Variable expenses 220000 100000 120000
    Contribution margin 780000 300000 480000
    (-) Traceable fixed cost 670000 280000 390000
    Segment margin 110000 20000 90000
    (-) Common fixed cost 60000 24000 36000

    2
    Net operating income 50000 (4000) 54000

    a) Prepare segment income statement correctly and comment on dropping of service G.


    b) The company plans to go for advertisement for Tk.20000 that may increase service
    revenue Tk.100000 without affecting fixed cost. Estimate the effect of this plan on segment
    margin and company margin.
    c) Determine break-even point revenue for company and two services.

    You might also like