Womack Report

September 25, 2007

Managerial Accounting, September 25

Filed under: Accounting,Notes,School — Phillip Womack @ 4:55 pm

Handing in our Try 2s today. I feel good about that. Allison, one of the people in my group, found a mistake in y first attempt, and we got that sorted out. Got the actual test back. Did all right. Got all the multiple choice questions, but lost a few points on the problems. Fortunately, that’s what the Try 2 helps with.

Scores on the test are generally not good. Average is just under 67. Not immediately obvious that people were getting hammered by one section or the other. Some folks bled on the multiple choice, some on the problems, some on both.

Chapter 7 today. Variable Costing.

In a variable costing setup, only manufacturing costs that vary with output are treated as product costs. All other costs are period costs. This requires dividing manufacturing overhead into fixed and variable components.

Previously we’ve been dealing with absorption costing. Absorption costing is GAAP approved and required by the IRS, but has drawbacks for internal reporting. Under absorption costing, fixed manufacturing overhead costs are treated as product costs, even though they will still be incurred when no product is produced.

When ending inventory increases, net income from absorption-cost accounting is larger than net income under varable-costing accounting. If you produce more than you sell, absorption costing will show a higher net income.

When ending inventory decreases, net income from absorption-costing accounting will be smaller than net income calculated via variable-costing accounting. If you sell more than you produce, variable costing will show a higher net income.

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