NOTICE: THE CPANET FORUM HAS MOVED!!!
PLEASE VISIT THE NEW FORUM AT: HTTP://CPAFORUM.CPANET.COM/
this forum will remain available for archive purposes only. SEE YOU AT THE NEW FORUM!!

  Active TopicsActive Topics  Display List of Forum MembersMemberlist  Search The ForumSearch  HelpHelp
  RegisterRegister  LoginLogin
BEC - Business Environment & Concepts (Forum Locked Forum Locked)
 CPAnet Forum : BEC - Business Environment & Concepts
Subject Topic: Variable vs. Absorption Costing (Topic Closed Topic Closed) Post ReplyPost New Topic
  
Author
Message << Prev Topic | Next Topic >>
garcian1
Regular
Regular


Joined: 05 Jun 2008
Online Status: Offline
Posts: 65
Posted: 26 Jul 2008 at 18:42 | IP Logged  

In its first year of operations, Magna Manufacturers had the following costs when it produced 100,000 and sold 80,000 units of its only product:

Manufacturing Costs:

 

     Fixed

$180,000

     Variable

 160,000

Selling & Admin. Costs:  
     Fixed 90,000
     Variable 40,000


How much lower would Magna's net income be if it used variable costing instead of full absorption costing?

A 36,000     B 54,000     C 68,000   D 94,000

Correct answer is A. The only difference between variable (or direct) and full absorption costing income is the treatment of fixed manufacturing costs. Variable costing expenses the full $180,000. Full absorption costing includes a share of the fixed manufacturing costs in inventory for the 20,000 finished but unsold units. (20,000 units x $180,000 / 100,000 units = $36,000)

Does anybody have an easy way to remember the difference between Variable costing and Full Absorption costing (ex. difference in expenses, NI, etc.? I'm having a hard time grasping these concepts. Thanks in advance!



__________________
garcian1
Back to Top View garcian1's Profile Search for other posts by garcian1
 
CPA08va
Regular
Regular


Joined: 26 Apr 2008
Location: United States
Online Status: Offline
Posts: 116
Posted: 27 Jul 2008 at 17:29 | IP Logged  

Really is not an easy way except to memorize the concepts.  I am currently studying the same using Becker and it is confusing and the answers do not always provide a good explanation....at least for someone like me who does not use cost accounting concepts for work.  I recommend writing down the formulas and concepts that are relevant every time you answer a question - that's what I am doing and it seems to work.

__________________
AUD - 88
BEC - 85
REG - 86
FAR - 85
Back to Top View CPA08va's Profile Search for other posts by CPA08va
 
nithya_frk
Newbie
Newbie


Joined: 12 Sep 2007
Location: United States
Online Status: Offline
Posts: 9
Posted: 27 Jul 2008 at 19:10 | IP Logged  

Hi Garcian1,

this is how i remember... to remember variable costing - as in the name i will group all variable and fixed costs together... revenue  - variable = contribution and from contribution you subtract fixed to get the income...

for absorption you would take the all manufacturing/product costs(no matter what either fixed or variable together and then subtract)... all that is left is just selling and admin (both fixed and variable) to get the income....

another point to remember would be the ending inventory...for absortion- the ending inventory-include both fixed and variable for teh ending inventory....as for variable costing -only the variable costs for the remaining inventory is taken...

i would try to incorporate this concept in 3-4 MCQ to help you remember the concept...

this is how i did....hope this helps...


__________________
nith_Ra_et
Back to Top View nithya_frk's Profile Search for other posts by nithya_frk
 
garcian1
Regular
Regular


Joined: 05 Jun 2008
Online Status: Offline
Posts: 65
Posted: 28 Jul 2008 at 15:11 | IP Logged  

Great. Thank you both! That definitely helps =)...

__________________
garcian1
Back to Top View garcian1's Profile Search for other posts by garcian1
 
pheepa
Regular
Regular


Joined: 06 Nov 2007
Online Status: Offline
Posts: 145
Posted: 29 Jul 2008 at 22:17 | IP Logged  

Hi

Another way in differentiating between Absorption and Variable (Direct) is that

If you produce more units than you sell, income will be higher under Absorption

If you produce less units than you sell, income would be higher under Variable

Cheers
Pheepa


__________________
Pheepa

AUD
REG
FAR
BEC
Trying to Keep my Eyes on the Prize
Back to Top View pheepa's Profile Search for other posts by pheepa
 



Sorry, you can NOT post a reply.
This forum has been locked by a forum administrator.


  Post ReplyPost New Topic
Printable version Printable version

Forum Jump
You cannot post new topics in this forum
You cannot reply to topics in this forum
You cannot delete your posts in this forum
You cannot edit your posts in this forum
You cannot create polls in this forum
You cannot vote in polls in this forum

Powered by Web Wiz Forums version 7.9
Copyright ©2001-2010 Web Wiz Guide

This page was generated in 0.2500 seconds.

Copyright 1996-2010 CPAnet/MizWeb Communities All Rights Reserved
Twitter
|Facebook | CPA Links |CPA Exam Club | About | Contact | Newsletter | Advertise & Promote|Expanded Listings