Answered: What is the difference in variable…

What is the difference in variable costing and absorption costing on the income statement? Which method is useful for manager's in making pricing and costing decisions?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Related questions

Q: What type of cost drivers do modern costing systems use and how does it differ from the cost drivers…

A: Cost Driver Business activities are influenced by a cost driver . Cost drivers are the factors…

Q: Kaizen costing aims to reduce costs during the A. production B. post-production C. design D. testing…

A: Note: We’ll answer the first question since the exact one wasn’t specified. Please submit a new…

Q: How important is it to trace costs appropriately? Explain. As you are beginning to think about the…

A: Solution:- 1)Discussion of How important is it to trace costs appropriately as follows under:-…

Q: Discuss the merits and demerits of the cost volume profit analysis (CVP)

A: Cost volume profit analysis is one of the important concept used in cost accounting. Under this…

Q: On assigning costs to different products. What is the benefit of cost assignment? How does this aid…

A: The cost assignment refers to the process where the costs are allocated to the objects or activities…

Q: Marginal cost and marginal benefit analysis are important to compute efficient level of production.…

A: marginal analysis is generally the process of decision making which involve an examination of…

Q: When should a company use absorption costing when setting sales prices? When should it use variable…

A: Variable Costing: "Variable costing is a method that allocates only variable manufacturing costs to…

Q: Which is more consistent with cost-volume-profit analysis, variable costing or absorption costing?…

A: Absorption Costing: "Absorption costing is a method that allocates "direct labor, direct materials,…

Q: Why do managers consider Direct Coasts to be more accurate than Indirect Costs? How do managers…

A: Direct costs are the costs which are directly identifiable in the manufacturing process. Indirect…

Q: What is a product cost? What is a period cost? What is the difference and why is it important to…

A: Product cost refers to all costs directly pertaining to the production of a product. While, Period…

Q: What are the factors Affecting Cost Management?

A: The objective of this question is to identify and explain the various factors that can influence…

Q: How do you prepare an absorption and variable costing income statement show a draft or format only.

A: An income statement is prepared by the organization to measure the revenues generated during the…

Q: Gross margin is to absorption costing as which of the following is too variable costing? A.…

A: Variable costing uses Contribution Margin Income Statement by showing Sales – VARIABLE expenses =…

Q: Is variable or absorption costing a better method of computing income from operations? Why?

A: Variable costing only covers the variable costs directly involved in production but excludes all…

Q: Explains the effect on profit of using variable (marginal) and absorption costing.

A: The income statement can be prepared using various methods as absorption costing and variable…

Q: How is the distinction between direct and indirect costs handled differently under volume-based…

A: Activity-based costing: It is a method that helps in finding the activities performed by a company…

Q: how Cost Managemnt decision-making plays a role in the decision-making and success of the company?

A: Cost management decision-making is a critical aspect of any business. It involves the process of…

Q: What is variable costing? How does it differ from absorpotion costing? Which can better be used to…

A: Variable Costing is a costing method where variable expenses change in proportion with production.…

Q: Show income comparison's of absorption and variable costing?

A: Absorption costing method can be defined as the all the costs that is associated with the production…

Q: Critically evaluate the concept and application of marginal costing

A: Concept of marginal costing: Marginal cost is the difference between total costs increasing or…

Q: Describe management’s use of absorption and variable costing.

A: Absorption costing is also known as Full absorption costing. It is one of the managerial accounting…

Q: When will NOI under the variable costing method show higher income than under the absorption costing

A: Net Operating Income: It is a calculation used to assess the profitability of the business.

Q: What could be the reason for which you can have different income figures in absorption costing and…

A: Cost accounting is the branch of accounting that inspects the cost structure of a business. This…

Q: Which costing system is helpful for internal managers when they're trying to make a short- term…

A: Cost Accounting is a process of identification, classification, measurement, and assignment of costs…

Q: What are these equations? c.Under absorption costing, what is the cost of goods sold? d.Under…

A: Hey, since there are multiple subparts posted, we will answer the first three subparts. If you want…

Q: What variable affecting gross profit should the manager focus his attention? Why?

A: Gross Profit is the profit arrived at by deducting cost of goods sold from the turnover or the…

Q: Which of the following is subjective approach in costing? a. All of these b. Traditional costing c.…

A: The question is based on the concept of Cost Accounting.

Q: Which cost accounting method assumes that the cost of production is driven by the number of units…

A: Methods of costing Different industries follow different methods for ascertaining cost of their…

Q: ost accounting method assumes that the cost of production is driven by the number of units produced?…

A: The basic premise of ABC Costing is that each activity within an organization consumes resources,…

Q: How cost accounting covers the problem of Evaluation of alternative while buying

A: Cost accounting system is a framework that guides the firm to calculate their cost and helps in…

Q: How does the contribution margin affect the cost-volume-profit analysis?

A: Cost Volume Profit analysis means the breakeven analysis which generally used to determine the break…

Q: How do you figure out the inventory on the Variable costing income statement?

A: The Income Statement is prepared by various methods one them is Variable Costing.

Q: Cost-volume-profit analysis is used to make many decisions, including product pricing and…

A: cost volume profit analysis (CVP analysis) is used to determine many factors such as 1)desired…

Q: What is the difference between cost tracing and allocation of costs?

A: 1. COST TRACING : IT IS THE ASSIGNMENT OF DIRECT COSTS TO A PARTICULAR COST OBJECT . 2.…

Q: Explain how the accounting definition of an asset is related to the choice between absorption and…

A: Absorption costing: Absorption costing is compulsory under Generally Accepted Accounting…

Q: in which cases is it preferable to prepare the income statement based on marginal costing? Justify…

A: Income statement refers to the statement which is being prepared by the business in order to…

Question

What is the difference in variable costing and absorption costing on the income statement? Which method is useful for manager's in making pricing and costing decisions?

Expert Solution

Step 1

In accounting of cost there are many methods of reporting of cost of manufacturing. Depending on the choice of managers they adopt different methods.

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Similar questions

What is activity analysis, and how is it used with cost driver analysis to manage costs and increase profits? Why are value-added activities defined from a customer viewpoint?
What connection exists between unit profit and labor costs?
Explain cost concepts it is relevant for the company to be aware of in decision situations such as. offer costs, uninterrupted costs, come-and-go costs, reversible and irreversible costs, etc. How can the company include these in specific decision-making situations?
1. Why are indirect costs not directly traced to cost objects in the same way as direct costs? 2. Define cost tracing, cost allocation, allocation base and cost driver. 3. Distinguish between arbitrary and cause-and-effect allocations. 4. Explain how cost information differs for profit measurement/inventory valuation requirements compared with decision-making requirements. 5. Explain why cost systems should differ in terms of their level of sophistication.
In CPV analysis/ marginal costing, the term contribution is used. What does Contribution mean to you?
What is cost stickiness? Why do managers need to be aware of cost stickiness?
Define standard costs and explain how they assist managers in controlling costs.
How are the current practices of life cycle costing and target costing in cost management different from the previous one?
Critically evaluate the concept and application of marginal costing
Describe income statement under variable costing.
What is the key different in accounting for costs between absorption and variable costing? Give a detailed example.
Which type of income statements, Contribution Format or Traditional Format should be used to identify relevant costs? Please provide explanation for your answer. Then provide an example including two income statements based on absorption and variable costing, respectively, to support your explanation.