Variable Costing: is also known as Direct costing method. In this method, those costs which vary directly with production are considered in product cost. Fixed Manufacturing Expenses are treated as period cost and not product cost. Selling Expenses (since they do not vary with production), both variable and fixed, are charged off completely in the period in which the expenses get incurred. Unit product Cost for two years

Question

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Answer 1

Question

Chapter 6, Problem 19P

Answer 1:

To determine

Variable Costing: is also known as Direct costing method. In this method, those costs which vary directly with production are considered in product cost. Fixed Manufacturing Expenses are treated as period cost and not product cost. Selling Expenses (since they do not vary with production), both variable and fixed, are charged off completely in the period in which the expenses get incurred.

Unit product Cost for two years

Answer 2

To determine

Net Operating Income under variable costing system for 2 years

Answer 3:

To determine

Reconciliation: Reconciliation is done between Net Operating Income as per Variable Costing and that as per Absorption Costing.

The difference between the two net operating income figures would be on account of fixed cost element on inventory.

Under Variable costing, the inventory is valued at Unit product cost as per variable costing method which is direct material plus direct labour plus variable manufacturing expenses.

Whereas

Under Absorption costing, the inventory is valued at Unit product cost as per absorption costing method which is direct material plus direct labour plus variable manufacturing expenses plus fixed cost per unit.

Due to the inclusion of fixed cost in inventory in absorption costing, following is the impact:

Opening inventory is higher resulting in decrease in profit

Closing inventory is higher resulting in increase in profit

Reconciliation of net operating income under variable and absorption costing

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A balance sheet shows cash, $75,000; marketable securities, $110,000; receivables, $90,000; and $225,000 of inventories. Current liabilities are $200,000. The current ratio is 1.375 to 1. a. True b. False

Answer 2

Question

Chapter 6, Problem 19P

Answer 1:

To determine

Variable Costing: is also known as Direct costing method. In this method, those costs which vary directly with production are considered in product cost. Fixed Manufacturing Expenses are treated as period cost and not product cost. Selling Expenses (since they do not vary with production), both variable and fixed, are charged off completely in the period in which the expenses get incurred.

Unit product Cost for two years

Answer 2

To determine

Net Operating Income under variable costing system for 2 years

Answer 3:

To determine

Reconciliation: Reconciliation is done between Net Operating Income as per Variable Costing and that as per Absorption Costing.

The difference between the two net operating income figures would be on account of fixed cost element on inventory.

Under Variable costing, the inventory is valued at Unit product cost as per variable costing method which is direct material plus direct labour plus variable manufacturing expenses.

Whereas

Under Absorption costing, the inventory is valued at Unit product cost as per absorption costing method which is direct material plus direct labour plus variable manufacturing expenses plus fixed cost per unit.

Due to the inclusion of fixed cost in inventory in absorption costing, following is the impact:

Opening inventory is higher resulting in decrease in profit

Closing inventory is higher resulting in increase in profit

Reconciliation of net operating income under variable and absorption costing

Expert Solution & Answer

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Answer 3

Question

Chapter 6, Problem 19P

Answer 1:

To determine

Variable Costing: is also known as Direct costing method. In this method, those costs which vary directly with production are considered in product cost. Fixed Manufacturing Expenses are treated as period cost and not product cost. Selling Expenses (since they do not vary with production), both variable and fixed, are charged off completely in the period in which the expenses get incurred.

Unit product Cost for two years

Answer 2

To determine

Net Operating Income under variable costing system for 2 years

Answer 3:

To determine

Reconciliation: Reconciliation is done between Net Operating Income as per Variable Costing and that as per Absorption Costing.

The difference between the two net operating income figures would be on account of fixed cost element on inventory.

Under Variable costing, the inventory is valued at Unit product cost as per variable costing method which is direct material plus direct labour plus variable manufacturing expenses.

Whereas

Under Absorption costing, the inventory is valued at Unit product cost as per absorption costing method which is direct material plus direct labour plus variable manufacturing expenses plus fixed cost per unit.

Due to the inclusion of fixed cost in inventory in absorption costing, following is the impact:

Opening inventory is higher resulting in decrease in profit

Closing inventory is higher resulting in increase in profit

Reconciliation of net operating income under variable and absorption costing

Expert Solution & Answer

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Answer 4

Question

Chapter 6, Problem 19P

Answer 1:

To determine

Variable Costing: is also known as Direct costing method. In this method, those costs which vary directly with production are considered in product cost. Fixed Manufacturing Expenses are treated as period cost and not product cost. Selling Expenses (since they do not vary with production), both variable and fixed, are charged off completely in the period in which the expenses get incurred.

Unit product Cost for two years

Answer 2

To determine

Net Operating Income under variable costing system for 2 years

Answer 3:

To determine

Reconciliation: Reconciliation is done between Net Operating Income as per Variable Costing and that as per Absorption Costing.

The difference between the two net operating income figures would be on account of fixed cost element on inventory.

Under Variable costing, the inventory is valued at Unit product cost as per variable costing method which is direct material plus direct labour plus variable manufacturing expenses.

Whereas

Under Absorption costing, the inventory is valued at Unit product cost as per absorption costing method which is direct material plus direct labour plus variable manufacturing expenses plus fixed cost per unit.

Due to the inclusion of fixed cost in inventory in absorption costing, following is the impact:

Opening inventory is higher resulting in decrease in profit

Closing inventory is higher resulting in increase in profit

Reconciliation of net operating income under variable and absorption costing

Expert Solution & Answer

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Answer 5

Chapter 6, Problem 19P

Answer 1:

To determine

Variable Costing: is also known as Direct costing method. In this method, those costs which vary directly with production are considered in product cost. Fixed Manufacturing Expenses are treated as period cost and not product cost. Selling Expenses (since they do not vary with production), both variable and fixed, are charged off completely in the period in which the expenses get incurred.

Unit product Cost for two years

Answer 2

To determine

Net Operating Income under variable costing system for 2 years

Answer 3:

To determine

Reconciliation: Reconciliation is done between Net Operating Income as per Variable Costing and that as per Absorption Costing.

The difference between the two net operating income figures would be on account of fixed cost element on inventory.

Under Variable costing, the inventory is valued at Unit product cost as per variable costing method which is direct material plus direct labour plus variable manufacturing expenses.

Whereas

Under Absorption costing, the inventory is valued at Unit product cost as per absorption costing method which is direct material plus direct labour plus variable manufacturing expenses plus fixed cost per unit.

Due to the inclusion of fixed cost in inventory in absorption costing, following is the impact:

Opening inventory is higher resulting in decrease in profit

Closing inventory is higher resulting in increase in profit

Reconciliation of net operating income under variable and absorption costing

Answer 6

Chapter 6, Problem 19P

Answer 1:

To determine

Variable Costing: is also known as Direct costing method. In this method, those costs which vary directly with production are considered in product cost. Fixed Manufacturing Expenses are treated as period cost and not product cost. Selling Expenses (since they do not vary with production), both variable and fixed, are charged off completely in the period in which the expenses get incurred.

Unit product Cost for two years

Answer 7

Chapter 6, Problem 19P

Answer 1:

To determine

Variable Costing: is also known as Direct costing method. In this method, those costs which vary directly with production are considered in product cost. Fixed Manufacturing Expenses are treated as period cost and not product cost. Selling Expenses (since they do not vary with production), both variable and fixed, are charged off completely in the period in which the expenses get incurred.

Unit product Cost for two years

Answer 8

Answer 2

To determine

Net Operating Income under variable costing system for 2 years

Answer 9

Answer 2

To determine

Net Operating Income under variable costing system for 2 years

Answer 10

Answer 3:

To determine

Reconciliation: Reconciliation is done between Net Operating Income as per Variable Costing and that as per Absorption Costing.

The difference between the two net operating income figures would be on account of fixed cost element on inventory.

Under Variable costing, the inventory is valued at Unit product cost as per variable costing method which is direct material plus direct labour plus variable manufacturing expenses.

Whereas

Under Absorption costing, the inventory is valued at Unit product cost as per absorption costing method which is direct material plus direct labour plus variable manufacturing expenses plus fixed cost per unit.

Due to the inclusion of fixed cost in inventory in absorption costing, following is the impact:

Opening inventory is higher resulting in decrease in profit

Closing inventory is higher resulting in increase in profit

Reconciliation of net operating income under variable and absorption costing

Answer 11

Answer 3:

To determine

Reconciliation: Reconciliation is done between Net Operating Income as per Variable Costing and that as per Absorption Costing.

The difference between the two net operating income figures would be on account of fixed cost element on inventory.

Under Variable costing, the inventory is valued at Unit product cost as per variable costing method which is direct material plus direct labour plus variable manufacturing expenses.

Whereas

Under Absorption costing, the inventory is valued at Unit product cost as per absorption costing method which is direct material plus direct labour plus variable manufacturing expenses plus fixed cost per unit.

Due to the inclusion of fixed cost in inventory in absorption costing, following is the impact:

Opening inventory is higher resulting in decrease in profit

Closing inventory is higher resulting in increase in profit

Reconciliation of net operating income under variable and absorption costing

Answer 12

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Answer 13

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Answer 14

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Answer 15

Ch. 6.A - Prob. 1E Ch. 6.A - EXERCISE 6A-2 Super-Variable Costing and Variable...Ch. 6.A - Prob. 3E Ch. 6.A - PROBLEM 6A-4 Super-Variable Costing and Variable...Ch. 6.A - Prob. 5P Ch. 6 - Prob. 1Q Ch. 6 - Are selling and administrative expenses treated as...Ch. 6 - Explain how fixed manufacturing overhead costs are...Ch. 6 - What are the arguments in favor of treating fixed...Ch. 6 - What are the arguments in favor of treating fixed...

Net Operating Income under variable costing system for 2 years

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