Question
In: Accounting
What is the rationale for excluding fixed manufacturing costs from inventoriable costs in costing systems such...
What is the rationale for excluding fixed manufacturing costs from inventoriable costs in costing systems such as variable costing and throughput costing? (Why do companies choose to treat Fixed Manufacturing Cost as period expense?)
Solutions
Expert Solution
Fixed manufacturing costs are fixed for a given period, it will not change accoeding to the changes in the production level.
Inventory costs are costs which are directly relatble to the production of such items.The term directly attributable means that, any change in the volume of production will also cause change in such expendture.
In variable costing & throughput accounting, it gives considertaions only to variable costs for computation of inventory costs.They exclude fixed manufacturing cost from cost of inventory. The rational behind the same is as explanied above, fixed cost do not effected by units of production, so it need not be added as cots or production.
Comapnies choose ixed cost as periodic cost, because it normally remain fixed for a given period.It does not change according to production. For example, rent for factory building will remain constant for a given period of time, irresepctive of the production.
ekkarill92 answered 2 years agoRelated Solutions
What is the theoretical justification for excluding fixed manufacturing costs from inventories in marginal costing?
What is the theoretical justification for excluding fixed
manufacturing costs from inventories in marginal costing?
What are inventoriable costs? Why are they important? What are non-inventoriable costs? What is an expenditure?...
What are inventoriable costs? Why are they important?
What are non-inventoriable costs?
What is an expenditure? When is it used in the inventory
process?
What is a loss? When is it used in the inventory
process?
What is the key difference between the periodic and perpetual
methods of updating inventory?
Variable Costing—Production Exceeds Sales Fixed manufacturing costs are $37 per unit, and variable manufacturing costs are...
Variable Costing—Production Exceeds Sales
Fixed manufacturing costs are $37 per unit, and variable
manufacturing costs are $111 per unit. Production was 91,000 units,
while sales were 86,450 units.
a. Determine whether variable costing income
from operations is less than or greater than absorption costing
income from operations.
b. Determine the difference in variable costing
and absorption costing income from operations.
$
Absorption costing does not distinguish between variable and fixed costs. All manufacturing costs are included in...
Absorption costing does not distinguish between variable and
fixed costs. All manufacturing costs are included in the cost of
goods sold.
Saxon, Inc.
Absorption Costing Income Statement
For the Year Ended December 31
1
Sales
$1,200,000.00
2
Cost of goods sold:
3
Beginning inventory
$0.00
4
Cost of goods manufactured
800,000.00
5
Ending inventory
(160,000.00)
6
Total cost of goods sold
640,000.00
7
Gross profit
$560,000.00
8
Selling and administrative expenses
289,000.00
9
Income from operations
$271,000.00
Under variable costing,...
Absorption costing does not distinguish between variable and fixed costs. All manufacturing costs are included in...
Absorption costing does not distinguish between variable and
fixed costs. All manufacturing costs are included in the cost of
goods sold.
Saxon, Inc.
Absorption Costing Income Statement
For the Year Ended December 31
1
Sales
$1,125,000.00
2
Cost of goods sold:
3
Beginning inventory
$0.00
4
Cost of goods manufactured
840,000.00
5
Ending inventory
(210,000.00)
6
Total cost of goods sold
630,000.00
7
Gross profit
$495,000.00
8
Selling and administrative expenses
275,000.00
9
Income from operations
$220,000.00
Variable Statement
Under...
Under absorption costing, fixed manufacturing overhead costs: a) are released from inventory when sales exceeds production...
Under absorption costing, fixed manufacturing overhead
costs:
a) are released from inventory when sales exceeds production
b) are treated as variable costs
c) are deferred into inventory when sales exceeds production
d) are ignored
e) are always treated as period costs
Stark Industries believes their indirect materials costs are a
variable cost, which change based on the number of units produced.
Last month's performance report showed that the flexible budget had
indirect materials cost totaling $8,500 for the month and...
Under absorption costing and variable costing, how are fixed manufacturing costs treated? a b c d
Under absorption costing and variable costing, how are fixed
manufacturing costs treated?
a
b
c
d
Absorption Statement Absorption costing does not distinguish between variable and fixed costs. All manufacturing costs are...
Absorption Statement
Absorption costing does not distinguish between variable and
fixed costs. All manufacturing costs are included in the cost of
goods sold.
Saxon, Inc.
Absorption Costing Income Statement
For the Year Ended December 31
Sales
$1,200,000
Cost of goods sold:
Cost of goods manufactured
$800,000
Ending inventory
(200,000)
Total cost of goods sold
(600,000)
Gross profit
$600,000
Selling and administrative expenses
(290,000)
Operating income
$310,000
Variable Statement
Under variable costing, the cost of goods manufactured includes
only variable manufacturing...
Absorption Statement Absorption costing does not distinguish between variable and fixed costs. All manufacturing costs are...
Absorption Statement
Absorption costing does not distinguish between variable and
fixed costs. All manufacturing costs are included in the cost of
goods sold.
Saxon, Inc.
Absorption Costing Income Statement
For the Year Ended December 31
Sales
$1,200,000
Cost of goods sold:
Cost of goods manufactured
$800,000
Ending inventory
(200,000)
Total cost of goods sold
(600,000)
Gross profit
$600,000
Selling and administrative expenses
(290,000)
Operating income
$310,000
Variable Statement
Under variable costing, the cost of goods manufactured includes
only variable manufacturing...
If variable manufacturing costs are $8 per unit and total fixed manufacturing costs are $454,300, what...
If variable manufacturing costs are $8 per unit and total fixed
manufacturing costs are $454,300, what is the manufacturing cost
per unit if:
a. 5,900 units are manufactured and the company
uses the variable costing concept?
$
b. 7,700 units are manufactured and the company
uses the variable costing concept?
$
c. 5,900 units are manufactured and the company
uses the absorption costing concept?
$
d. 7,700 units are manufactured and the company
uses the absorption costing concept?
$
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