Presentation on theme: "Chapter 14 Measuring and Assigning Costs for Income Statements"— Presentation transcript:
1 Chapter 14 Measuring and Assigning Costs for Income Statements Key Topics:Absorption costingVariable costingThroughput costingReconciling incomeActual versus normal costingUses and limitations of costing information
8 Asian Iron Production:10,500 units Sales: 9,400 units at NT$32,900 Variable direct materials cost: NT$2,300Variable direct labor cost: NT$3,300Variable manufacturing overhead: NT$2,800Variable selling: NT$940Fixed manufacturing overhead: NT$8,250Fixed selling and administrative costs: NT$14,560
9 Asian Iron Prepare each of the following income statements: Absorption VariableThroughput
10 Reconciling the Income Statements To reconcile income:Analyze changes in inventory levelsAbsorption costing inventory includes overhead allocationVariable costing inventory includes only variable costsThroughput costing inventory includes only direct materials
11 Reconciling the Income Statements for Asian Iron Assume there is no beginning inventory and calculate:Ending inventory amounts under the absorption, variable, and throughput methodsA reconciliation of variable and throughput income to absorption income
12 Actual versus Normal Costing Actual allocation rate= Actual overhead/Actual volumeNormal allocation rate= Estimated overhead/Estimated volumeNormal costing requires end of period adjustment: Volume variance= Expected overhead - allocated overhead
13 Happy Bikers Motorcycle Company Following is information about operations at Happy Bikers. Price and variable cost information is per unit.Price is $10,000, raw materials cost is $2,000, direct labor and variable overhead is $1,000, variable selling and administration is $250.Fixed costs are per month and include $40,000 for production costs and $35,000 for fixed selling and administration.There is no beginning inventory, average production is 10 motorcycles per month, but last month 18 units were produced and 15 were sold. For absorption costing, Happy Bikers’ accountants use normal costing with 10 units as the volume denominator.
14 Happy Bikers Motorcycle Company Prepare an absorption costing income statement for Happy Bikers using actual costing.Prepare an absorption costing income statement using normal costing.Reconcile the actual and normal income statements.For the beginning of the next class:Prepare a variable costing income statement for Happy Bikers.Prepare a throughput costing income statement for Happy Bikers.Reconciles the variable and throughput costing income statements to the absorption costing statement using normal costing.
15 Uses and Limitations of Costing Information Absorption costing information is GAAP, and includes average costs so it is not appropriate for decision makingVariable costing is not GAAP but is useful for decision makingThroughput costing is not GAAP but is useful for short-term capacity decision making