ABSORBTION COSTING
- fixed over head is treated as? - type of income statement prepared - method is acceptable GAAP and tax reporting
- Product cost: held in inventory until sold
- Traditional format (gross margin)
- Yes
VARIABLE COSTING
- fixed over head is treated as? - type of income statement prepared - method is acceptable GAAP and tax reporting
- Period cost: expensed immediately
- Contribution format (contribution margin)
- No, internal use only
When Production>Sales in ABSORPTION vs VARIABLE:
- Fixed manufacturing costs
- COGS Expense
- Net income
ABSORBTION
- less than all expensed (only for sold products)
- is less
- is higher
VARIABLE
- 100% is expensed
- is more
- is lower
When Production<Sales in ABSORPTION vs VARIABLE:
- Fixed manufacturing costs
- COGS Expense
- Net income
ABSORBTION
- more than 100% is expensed (for all sold products)
- is more
- is lower
VARIABLE
- 100% is expensed
- is less
- is higher
Incremental budgeting begins with
the budget from last year
zero based budgeting
everything starts with 0 and then all must be justified
rolling budget
always 12 months on budget
standard cost
budget for a single unit of product
Production Budget formula
to sell + #in Ending Inventory - #in Beginning Inventory
Direct Materials Budget Formula
to produce + #in Ending Inventory - #in Beginning Inventory= quantity to purchase x standard price per unit of input
Direct Labor Budget Formula
to produce x Direct Labor Hours per unit x wage rate per DLH
Manufacturing Overhead Budget Formula
Cost Driver x Variable MOH Rate + Fixed MOH= total MOH used for PDMOH Rate - Non cash items = Total MOH cash costs
Cost of Goods sold expense Budget
Direct Materials Used + Direct Labor Used + MOH Allocated = Cost of goods manufactured + Beginning Finished Goods Inventory - Ending Finished Goods Inventory
Selling and Administrative Expense Budget
of units to sell x Variable selling cost per unit + fixed selling costs
Flexible budget variance
(actual cost per unit - standard cost per unit) x actual volume
Sales volume variance
(actual volume - budgeted volume) x standard cost per unit
Price/Spending Variance
(actual price - standard price) x actual quantity
Quantity/Efficiency Variance
(actual quantity - standard quantity) x standard price per unit
Actual Budget Formula
Actual price x actual quantity x actual volume
Hybrid Budget Formula
Actual quantity x standard price x actual volume
Flexible Budget Formula
Standard Price x standard quantity x actual volume
Master Budget Formula
Standard Price x standard quantity x budgeted volume
Tips for Direct Material Variances
- use the amount of DM purchased to calculate the price variance
- use the amount of DM used to calculate the quantity variance
What are some causes of DM Price variances
- failure to take purchase discounts
- unexpected discounts taken
- unexpected price changes in materials
- changes in freight costs
- variation in grades of materials
