Managerial Accounting -- Budgeting: Differential Analysis
This assignment considers variable costing as a decision-making tool for evaluating whether to accept an order to manufacture Product C, which is a product proposed by an existing customer for whom Lewis Company is manufacturing Product B. Two general methods for valuing inventory and for determining the cost of goods sold are absorption costing and variable costing. The data in this case study is presented in the absorption costing format. Absorption costing is typically associated with financial reports, as in this case, with the Absorption Income Statement. Managers prefer variable costing as a tool for making business decisions ("Accounting for Management," 2012). Variable costing must be employed when the contribution margin format is used in an income statement ("Accounting for Management," 2012). To say that these two methods are simply alternative approaches would be a misstatement since the two costing systems can generate substantively different figures with regard to net operating income ("Accounting for Management," 2012).
Absorption costing treats all production costs as product costs whether fixed or variable (Hermanson, 2011). The unit costs in absorption costing include direct labor, direct materials, fixed overhead, and variable overhead (Hermanson, 2011). A portion of fixed overhead manufacturing cost and a portion of variable overhead manufacturing costs are allocated to each unit manufactured (Hermanson, 2011). Absorption costing is also referred to as a full costing approach since it categorizes all production costs as product costs (Hermanson, 2011).
Variable costing treats the production costs that vary with the manufacturing output as product costs (Hermanson, 2011). Including in this category, as product costs are direct labor, direct material, and the variable overhead manufacturing costs (Hermanson, 2011). Fixed overhead manufacturing costs are not treated as part of the product costs in a variable costing approach (Hermanson, 2011). Rather, fixed overhead manufacturing costs are treated as a period cost and is completely charged off in each revenue period, in the same manner as administrative costs and selling costs (Hermanson,...
Managerial Term Managerial Accounting FINAL EXAMINATION Please complete the following by typing your answer letter next to "ANS" (example "ANS: c) and return to your Instructor via Blackboard by midnight, August 1, 2012: A (n) ____ is a review to determine whether the policies and procedures specified by top management have been implemented. A) management audit B) internal audit C) internal control D) internal accounting control 2) Variances A) are quantitative expressions of plans of action B) ignore areas that are
Managerial Accounting Managerial accountants are charged with all financial matters that do not pertain to the financial accounting statements. Within their company, they ensure that the company has good financial security, they perform analysis on costs and revenues, they perform budgeting, handle taxes, and their work is frequently used in strategic planning, whereby they provide the financial analysis to management to help make better decisions (No author, 2012). Some of the
Managerial Accounting Accounting Managerial accounting is different from financial accounting because it is used primarily by companies and organization to generate weekly, daily and monthly reports to help them forecast future financial events (Birnberg, 1992). The profession of managerial accounting looks at the many ways managers can help facilitate increased revenues over defined times, and the future in general. It is not concerned with investments as much as it is concerned with
Managerial Accounting Elkay is a manufacturer of sinks. The company has three plants, serving different markets. The Ogden plant is high-volume, low-margin production. The company has new technology that makes it an innovator in efficiency. The Lumberton plant focuses on high margin items. Broadview is for commercial, institutional and specialty products. The company's information provides feedback about profits that indicates one customer type provides all of the profits, and the other
That we do not find out about cost overruns until the project is completed creates a climate where managers are motivated to overlook past transgressions yet are powerless to address future ones. Lastly, I would tie performance-based bonuses either to non-financial measures or to ones based on financial accounting, subject to GAAP and other defined rules and procedures. In general, financial incentives are only necessary when there are competing
Managerial Accounting E-Company Income Statement Contribution Margin For Period Ended Dec 31, 20XX Revenue less V Mfg Cost less V Op/Selling Cost Gross Profit (Contribution Margin) Fixed Mfg Overhead Fixed S&A Exp Total Fixed Costs Net Income $4,765,000 E-Company Income Statement Absorption Method For Period ended Dec 31, 20XX Revenue Less Mfg Cost Less Op/Selling Cost Less S&A Exp Net Income $5,485,500 The gross profit margin is 75.6%. This is calculated as the (revenue -- cogs) / revenue (Investopedia, 2011). The contribution margin is similar, but does not include costs associated with goods
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