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    Managerial Accounting: Prepared by Diane Tanner University of North Florida

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    harshnvicky123
    This document discusses managerial accounting concepts related to product costing and income statements. It covers two methods for determining product costs: full (absorption) costing and variable costing. Full costing includes all costs and is required for GAAP reporting, while variable costing focuses on cost behavior and is used internally. The document also explains how product costs are reported for merchandising versus manufacturing companies and defines the components of product costs under full and variable costing. Finally, it demonstrates expanded GAAP and variable costing income statements and explains the differences between gross profit ratio and contribution margin ratio.

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    Managerial Accounting: Prepared by Diane Tanner University of North Florida

    Uploaded by

    harshnvicky123
    21 views10 pages
    This document discusses managerial accounting concepts related to product costing and income statements. It covers two methods for determining product costs: full (absorption) costing and variable costing. Full costing includes all costs and is required for GAAP reporting, while variable costing focuses on cost behavior and is used internally. The document also explains how product costs are reported for merchandising versus manufacturing companies and defines the components of product costs under full and variable costing. Finally, it demonstrates expanded GAAP and variable costing income statements and explains the differences between gross profit ratio and contribution margin ratio.

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    This document discusses managerial accounting concepts related to product costing and income statements. It covers two methods for determining product costs: full (absorption) costing and variable costing. Full costing includes all costs and is required for GAAP reporting, while variable costing focuses on cost behavior and is used internally. The document also explains how product costs are reported for merchandising versus manufacturing companies and defines the components of product costs under full and variable costing. Finally, it demonstrates expanded GAAP and variable costing income statements and explains the differences between gross profit ratio and contribution margin ratio.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    21 views10 pages

    Managerial Accounting: Prepared by Diane Tanner University of North Florida

    Uploaded by

    harshnvicky123
    This document discusses managerial accounting concepts related to product costing and income statements. It covers two methods for determining product costs: full (absorption) costing and variable costing. Full costing includes all costs and is required for GAAP reporting, while variable costing focuses on cost behavior and is used internally. The document also explains how product costs are reported for merchandising versus manufacturing companies and defines the components of product costs under full and variable costing. Finally, it demonstrates expanded GAAP and variable costing income statements and explains the differences between gross profit ratio and contribution margin ratio.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    of 10

    Managerial Accounting

    Basic Variable
    and Full Costing

    Prepared by Diane Tanner


    University of North Florida
    2

    Measuring Product Costs


    Includes all costs necessary to get products
    ready to sell
    Two methods to determine product costs
    Full (absorption) costing Helps managers
    make product
    Required for GAAP reporting decisions as it is
    Emphasizes the cost function easy to predict how
    costs will behave in
    Variable costing the future
    Used for internal decision making
    Emphasizes cost behavior
    3

    Reporting Product Costs


    Merchandising companies
    Buy goods to sell
    Product costs reported
    Merchandise Inventory on the balance sheet
    Cost of Goods Sold on the income statement
    Manufacturing companies
    Buy materials to produce products to sell
    Product costs reported
    Raw Materials, Work in Process, Finished Goods
    on the balance sheet
    Cost of Goods Sold on the income statement
    4

    Components of Product Costs


    Inventoriable costs include
    Full Direct materials
    Costing Direct labor
    Variable manufacturing overhead
    costs
    Fixed manufacturing overhead costs
    Inventoriable costs include
    Variable Direct materials
    Direct labor
    Costing
    Variable manufacturing overhead
    costs
    5

    Two Forms of Income Statements


    Full costing income statement
    Costs are reported based on function
    Product versus period
    Gross margin is the amount available
    to cover operating expenses and to go
    towards profit.
    Variable costing income statement
    Costs are reported based on behavior
    Variable versus fixed
    Contribution margin is the amount
    available to cover fixed costs and to go
    towards profit.
    5
    6

    GP Ratio vs. CM Ratio

    Contribution Margin (in $)


    Sales (in $)
    Indicates the portion of every sales dollar available
    Interpretation
    to cover fixed costs and to go towards profit

    Gross Profit (in $)


    Sales (in $)
    Indicates the portion of every sales dollar available
    Interpretation
    to cover operating costs and to go towards profit
    7

    Expanded GAAP Income Statement


    Sales $100,000
    Cost of goods sold:
    Variable product costs $22,000
    Fixed product costs 11,000
    Total cost of goods sold 33,000
    Gross margin (gross profit) 67,000
    Operating expenses:
    Variable period costs 38,000
    Fixed period costs 19,000
    Total operating expenses 57,000
    Net operating income $10,000

    Gross profit $67,000


    = = 67.00%
    Sales $100,000
    Expanded Variable Costing
    8

    Income Statement
    Sales $100,000
    Variable costs:
    Variable product costs $22,000
    Variable period costs 38,000
    Total variable costs 60,000
    Contribution margin 40,000
    Fixed expenses:
    Fixed product costs 11,000
    Fixed period costs 19,000
    Total fixed expenses 30,000
    Net operating income $10,000

    Contribution Margin $40,000


    = = 40.00%
    Sales $100,000
    9

    The Contribution Approach


    Consider the following information developed by the
    accountant at Element Skateboard Co:
    Total Per Unit Percen
    Sales (500 skateboards) $ 250,000 $ 500 100
    Variable expenses 150,000 300 60
    Contribution margin $ 100,000 $ 200 40
    Fixed expenses 80,000
    Net operating income $ 20,000

    CMR: = $200/$500 = 40%


    For each sales dollar For each additional
    generated by Element, profit skateboard sold, profit will
    will increase by $0.40. Fixed increase by $200. Fixed costs
    costs in total do not change. in total do not change.
    The End

    10

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