Chapter 6, Problem 6PA

1.

To determine

Variable Costing

Variable costing is the method that is used by the management (managers) for decision making purposes. The cost of goods manufactured includes direct materials, direct labor, and variable factory overhead. Fixed factory overhead is treated as period (fixed) expense.

Contribution Margin Analysis

Contribution margin analysis emphasized on explaining the differences between planned and actual contribution margins. Managers are regularly used this analysis for planning and supervisory purposes.

Contribution Margin

Contribution margin is the excess of manufacturing margin above selling and administrative expenses. Contribution margin is calculated by deducting the variable cost from sales or deducting variable selling and administrative expenses from manufacturing margin.

To calculate: The contribution margin analysis report for the year ended December 31.

2.

To determine

To interpret: The contribution margin analysis report.