cma考试P1-05

Copyright高才国际教育集团S5:CostAllocationTechniques1MODULE34TAXES:TRANSACTIONSINPROPERTYS5:CostAllocationTechniquesInstructor:HelenCopyright高才国际教育集团P1–FinancialPlanning,PerformanceandControlCopyright高才国际教育集团S5:CostAllocationTechniques2CostAllocationTechniquesS5A.Absorption(Full)vs.Variable(Direct)CostingB.JointProductandBy-ProductCostingC.OverheadCostsandNormalCostingD.AllocationofServiceDepartmentCostsCopyright高才国际教育集团S5:CostAllocationTechniques3A.Absorptionvs.VariableCostingCopyright高才国际教育集团S5:CostAllocationTechniques4AAbsorptionvs.VariableCosting1.FormulaSalesFGINVBEGAdd:VariableproductioncostsAdd:FixedproductioncostsGoodsavailableforsaleLess:FGINVENDCOGSLess:VariableS&AEXPGM(Absorption)/CM(variable)Less:FixedproductioncostsLess:VariableS&AEXPLess:FixedS&AEXPOperatingIncome$X,XXXX,XXXX,XXXX,XXX(X,XXX)Absorptioncosting$X,XXX($X,XXX)--$X,XXX--(XXX)(XXX)$X,XXXProductCostPeriodCostCopyright高才国际教育集团S5:CostAllocationTechniques51.FormulaSalesFGINVBEGAdd:VariableproductioncostsAdd:FixedproductioncostsGoodsavailableforsaleLess:FGINVENDCOGSLess:VariableS&AEXPGM(Absorption)/CM(variable)Less:FixedproductioncostsLess:VariableS&AEXPLess:FixedS&AEXPOperatingIncomeVariablecosting$X,XXX$X,XXXX,XXX--X,XXX(X,XXX)($X,XXX)(XXX)$X,XXX(X,XXX)--(XXX)$X,XXXProductCostPeriodCostAAbsorptionvs.VariableCostingCopyright高才国际教育集团S5:CostAllocationTechniques6AAbsorptionvs.VariableCosting2.VariableCostingAsInternalReportingTechniquea)TheorybehindthevariablecostingFixedOHcostarethecostsofmaintainingcapacity,notthecostofproducingaproduct.Forexample:ifacompanyhasafixedrentalexpenseof$10,000permonthonitsfactorybuilding,thatcostwillbe$10,000regardlessofwhetherthereisanyproduction.Ifthecompanyproduceszerounits,thecostwillbe$10,000;ifthecompanyproduces10,000units,thecostwillbe$10,000.Therefore,the$10,000isnotviewedasacostofproduction,soitisnotaddedtothecostoftheinventoriesproduced.Copyright高才国际教育集团S5:CostAllocationTechniques7AAbsorptionvs.VariableCosting2.VariableCostingAsInternalReportingTechniqueb)Incomecannotbemanipulatedbymgmtundervariablecosting.Whenproductionandsalesarenotequalforaperiod,thetwomethodsreportdifferentoperatingincome.①Whenproductionsales,INVENDexpandsUnderabsorptioncosting,somefixedcostsarestillembeddedinINVEND.Undervariablecosting,allfixedcostshavebeenexpensed.Therefore,operatingincomeishigherunderabsorptioncosting.②Whenproductionsales,INVENDdecreasesUnderabsorptioncosting,fixedcostsembeddedinINVBEGgetexpensed.Undervariablecosting,onlythecurrentperiod’sfixedcostsareexpensed.Therefore,operatingincomeishigherundervariablecosting.Note:whenproductionandsalesareequalduringaperiod,bothmethodswillshowthesameincome.Copyright高才国际教育集团S5:CostAllocationTechniques8AAbsorptionvs.VariableCosting2.VariableCostingAsInternalReportingTechniqueb)Incomecannotbemanipulatedbymgmtundervariablecosting.Whenproductionandsalesarenotequalforaperiod,thetwomethodsreportdifferentoperatingincome.Example:Afirm,duringitsfirstmonthinbusiness,produced100unitsandsold80whileincurringthefollowingcosts:DMDLVOHMfg.costsusedinvariablecostingFOHMfg.costsusedinabsorptioncosting$1,0002,0001,500$4,5003,000$7,500SellingpriceVS&AFS&A$100200600Copyright高才国际教育集团S5:CostAllocationTechniques9AAbsorptionvs.VariableCosting2.VariableCostingAsInternalReportingTechniqueb)Incomecannotbemanipulatedbymgmtundervariablecosting.Whenproductionandsalesarenotequalforaperiod,thetwomethodsreportdifferentoperatingincome.Solution:Step1:determinecostperunitDMDLVOHMfg.costsusedinvariablecostingFOHMfg.costsusedinabsorptioncosting$1,0002,0001,500$4,5003,000$7,500VCperunit=$4,500/100units=$45TCperunit=$7,500/100units=$75Copyright高才国际教育集团S5:CostAllocationTechniques10AAbsorptionvs.VariableCosting2.VariableCostingAsInternalReportingTechniqueb)Incomecannotbemanipulatedbymgmtundervariablecosting.Whenproductionandsalesarenotequalforaperiod,thetwomethodsreportdifferentoperatingincome.Solution:SalesVariablemfg.costsFixedmfg.costsINVENDCOGSGrossprofitVariableS&AFixedS&AOperatingincome$8,000$4,5003,000(1,500)6,000$2,000(200)(600)$1,200AbsorptioncostingSalesVariablemfg.costsINVENDCOGSVariableS&AContributionmarginFixedmfg.costsFixedS&AOperatingincomeVariablecosting$8,000$4,500(900)3,600200$4,200(3,000)(600)$600Underabsorptioncosting,bothINVENDandOperatingincomelookgood.Copyright高才国际教育集团S5:CostAllocationTechniques11AAbsorptionvs.VariableCosting2.VariableCostingAsInternalReportingTechniqueb)Incomecannotbemanipulatedbymgmtundervariablecosting.ProducingforinventoryunderAbsorptioncosting①Aproductionmanagercanthusincreaseabsorption-basisoperatingincomemerelybyincreasingproduction,whetherthereisanycustomerdemandfortheadditionalproductornot.②Thecompanymustalsodealwiththeincreasedcarryingcostsresultingfromswellinginventorylevels.③Whilethispracticecanbeeffectivelydiscouragedbyusingvariablecostingforperformancereportingandconsequentbonuscalculation.Undervariablecosting,costfiguresareguidedbythesalesfigures.ThehigherthefixedOHcost,thehighertheINVENDbuildup,thegreaterthedifferencebetweenthetwomethods.Copyright高才国际教育集团