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Chapter six

Variable Being and Segment Reporting:

Tools intended for Management

Solutions to Questions

6-1Absorption and varying costing vary in how they handle set manufacturing overhead. Under ingestion costing, set manufacturing expense is remedied as a item cost and hence is an asset until items are sold. Underneath variable charging, fixed making overhead is treated as being a period expense and is expensed on the current period's profits statement. 6-2Selling and administrative expenses will be treated because period costs under both equally variable charging and compression costing. 6-3Under absorption being, fixed developing overhead costs are included in merchandise costs, along with immediate materials, direct labor, and variable production overhead. In the event that some of the devices are not offered by the end with the period, chances are they are taken into the following period because inventory. If the units will be finally distributed, the set manufacturing expense cost that has been carried using the units is included within that period's cost of items sold. 6-4Absorption costing promoters argue that consumption costing does a better job of corresponding costs with revenues than variable charging. They believe all developing costs should be assigned to products effectively match the expense of producing models of merchandise with the earnings from the models when they are sold. They believe that no difference should be manufactured between varying and fixed making costs to get the uses of coordinating costs and revenues. 6-5Advocates of variable costing argue that fixed manufacturing costs are generally not really the expense of any particular unit of product. If a unit is made or not, the total fixed manufacturing costs will be precisely the same. Therefore , how can one say that these costs will be part of the costs of the items? These costs are received to have the ability to make products during a particular period and should be recharged against that period as period costs according to the complementing principle. 6-6If production and sales are equal, net operating profits should be the same under absorption and changing costing. The moment production means sales, inventories do not increase or decrease and therefore below absorption priced at fixed production overhead expense cannot be deferred in inventory or unveiled from products on hand. 6-7If development exceeds product sales, absorption priced at will usually show higher net operating profits than variable costing. The moment production surpasses sales, arrays increase and under compression costing area of the fixed making overhead expense of the current period is deferred in products on hand to the next period. In contrast, all of the fixed developing overhead cost of the current period is instantly expensed under variable being. 6-8If set manufacturing cost to do business cost is introduced from inventory, then products on hand levels must have decreased and so production need to have been below sales. 6-9Under absorption costing net functioning income can be increased by just increasing the level of production with no increase in sales. If creation exceeds product sales, units of product are added to products on hand. These units carry a portion of the current period's set manufacturing overhead costs into the inventory account, minimizing the current period's reported expenditures and causing net functioning income to increase. 6-10Differences in reported net operating profits between compression and variable costing occur because of changing levels of inventory. In trim production, merchandise are developed strictly to customers' orders. With creation geared to sales, inventories will be largely (or entirely) removed. If arrays are completely eliminated, they cannot change from one particular period to a new and ingestion costing and variable costing will survey the same net operating salary. 6-11A segment is any part or activity of an organization about which will a manager seeks cost, revenue, or profit info. Examples of segments include departments, operations, sales...


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