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Chapter 20(5) Variable Costing For Management Analysis OBJECTIVES Obj1Describe and illustrate income reporting under variable costing and absorption costing. Obj 2Describe and illustrate income analysis under variable costing and absorption costing. Obj 3Describe and illustrate management’s use of variable costing and absorption costing for controlling costs, pricing products, planning production, analyzing contribution margins, and analyzing market segments. Obj 4Use variable costing for analyzing market segments including product, territories, and salespersons segments. Obj 5Use variable costing for analyzing and explaining changes in contribution margin as a result of quantity and price factors. Obj 6Describe and illustrate the use of variable costing for service firms. QUESTION GRID True/False No . Objectiv e Difficult y No . Objectiv e Difficult y No . Objectiv e Difficulty 120(5)-01Easy2320(5)-01Difficult45 20(5)-03Easy 220(5)-01Easy2420(5)-01Difficult4620(5)-04Easy 320(5)-01Easy2520(5)-01Difficult4720(5)-04 Difficult 420(5)-01Easy2620(5)-01Difficult4820(5)-04Difficult 520(5)-01Easy2720(5)-01Difficult4920(5)-04 Easy 620(5)-01Easy2820(5)-01Difficult5020(5)-04Difficult 720(5)-01Easy2920(5)-01Difficult5120(5)-04Easy 820(5)-01Easy3020(5)-01Difficult5220(5)-04Easy 920(5)-01Difficult3120(5)-01Difficult5321-05Easy 1020(5)-01 Difficult3220(5)-01Difficult5421-05Easy 1120(5)-01Difficult3320(5)-01Difficult5521-05Easy 12 20(5)-01Difficult3420(5)-01Difficult5621-05Easy 1320(5)-01Easy3520(5)-01Difficult5721-05Easy 1420(5)-01 Easy3620(5)-02Difficult5821-05Easy 1520(5)-01Easy3720(5)-02Difficult5921-05Easy 1620(5)-01Easy38 20(5)-02Difficult6021-05Easy 1720(5)-01Easy3920(5)-03Difficult6121-05Difficult 1820(5)-01Easy4020(5)-03 Difficult6221-06Moderate 1920(5)-01Easy4120(5)-03Difficult6321-06Moderate 2020(5)-01Easy4220(5)-03Easy64 21-06Moderate 2120(5)-01Easy4320(5)-03Easy6521-06Easy 2220(5)-01Easy4420(5)-03Easy 159 What are the methods used for absorption costing and variable costing?Absorption costing entails allocating fixed overhead costs to all units produced for an accounting period. Variable costing includes all of the variable direct costs in COGS but excludes direct, fixed overhead costs.
Can absorption and variable costing be the same?The only difference between absorption costing and variable costing is in the treatment of fixed manufacturing overhead. Using absorption costing, fixed manufacturing overhead is reported as a product cost. Using variable costing, fixed manufacturing overhead is reported as a period cost.
How does absorption costing and variable costing make difference in management decision making?Because absorption costing includes fixed overhead costs in the cost of its products, it is unfavorable compared with variable costing when management is making internal incremental pricing decisions. This is because variable costing will only include the extra costs of producing the next incremental unit of a product.
Why do managers frequently prefer variable costing to absorption costing for internal use?As opposed to "absorption costing," which is a system that considers all manufacturing costs for reporting purposes, many managers argue that variable costing is more effective for decision making because this method excludes fixed overhead costs of goods sold.
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Management may use both absorption and variable costing methods for analyzing a particular product
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