New User Special Price Expires in

Let's log you in.

Sign in with Facebook


Don't have a StudySoup account? Create one here!


Create a StudySoup account

Be part of our community, it's free to join!

Sign up with Facebook


Create your account
By creating an account you agree to StudySoup's terms and conditions and privacy policy

Already have a StudySoup account? Login here

Septemeber 27th Notes

by: Callisa Ruschmeyer

Septemeber 27th Notes Acct 2210- 001

Marketplace > Auburn University > Accounting > Acct 2210- 001 > Septemeber 27th Notes
Callisa Ruschmeyer
GPA 4.0

Preview These Notes for FREE

Get a free preview of these Notes, just enter your email below.

Unlock Preview
Unlock Preview

Preview these materials now for free

Why put in your email? Get access to more of this material and other relevant free materials for your school

View Preview

About this Document

Chapter 6 Notes Absorption vs. Variable Costing
Managerial Accounting
Mr. Fetsch
Class Notes
Managerial Accounting Notes, Chapter6, absorption, variable, costs, fetsch
25 ?




Popular in Managerial Accounting

Popular in Accounting

This 3 page Class Notes was uploaded by Callisa Ruschmeyer on Thursday September 29, 2016. The Class Notes belongs to Acct 2210- 001 at Auburn University taught by Mr. Fetsch in Fall 2016. Since its upload, it has received 6 views. For similar materials see Managerial Accounting in Accounting at Auburn University.


Reviews for Septemeber 27th Notes


Report this Material


What is Karma?


Karma is the currency of StudySoup.

You can buy or earn more Karma at anytime and redeem it for class notes, study guides, flashcards, and more!

Date Created: 09/29/16
September 27 Notes All Notes for Chapter 6 Overview of Variable and Absorption Costing  Variable Costing Absorption Costing Product Costs Direct Materials Direct Materials Direct Labor Direct Labor Variable MOH Variable MOH Fixed MOH Period Costs Fixed MOH Variable S and Adm. Variable S and Adm. Expenses Expenses Fixed S and Adm. Expenses Fixed S and Adm. Expenses Absorption Costing  Absorption costing is the method that will produce the highest values for work in process and finished goods inventories  Under absorption costing, all product costs variable and fixed, are included when determining unit product cost. Under variable costing, only the variable production costs are included in product costs  Under the absorption costing, every unit produced absorbs some of the fixed MOH (product cost) o If some of the units produced are not sold in that period, some current costs are held in inventory rather than being expensed o If more units are sold than are produced, the deferred costs will finally be expensed  Relation between production Effect on Relation between variable and and sales inventory absorption income Units produced = units sold No change in Absorption = Variable inventory Units produced > units sold Inventory Absorption > Variable increases Units produced < units sold Inventory Absorption < Variable decreases Enabling CVP Analysis  Variable costing categorizes costs as fixed and variable, so it is much easier to use this income statement format for CVP analysis  Because absorption costing assigns fixed manufacturing overhead costs to units produced, a portion of fixed manufacturing overhead resides in inventory when units remain unsold o The potential result is positive operating income when the number of units sold is less than the break-even point September 27 Notes All Notes for Chapter 6 Explaining Changes in Net Operating Income  Variable costing income is only affected by changes in unit sales. o It is not affected by the number of units produced o As a general rule, when sales go up, net operating income goes up, and vice versa  Absorption costing income is influenced by changes in unit sales and units of production o Net operating income can be increased simply by producing more units even if those units are not sold Supporting Decision Making  Variable costing correctly identifies the additional variable costs incurred to make one more unit. o It also emphasizes the impact of total fixed costs on profits  If you only use absorption costing, production managers can manipulate operating income by overproducing or under producing Decentralization and Segment Reporting  A segment is any part or activity of an organization about which a manager seeks cost, revenue, or profit data  Keys to segmented income statements 1. A contribution format should be used because it separates fixed from variable costs and it enables the calculation of a contribution margin 2. Traceable fixed costs should be separated from common fixed costs to enable the calculation of a segment margin Identifying Traceable Fixed Costs and Common Fixed Costs  Traceable fixed costs arise because of the existence of a particular segment and would disappear over time if the segment itself disappeared o Example- no computer division = no computer division manager  Common fixed costs arise because of the overall operation of the company and would not disappear if any particular segment were eliminated o Example- no computer division = still have a company president  Realize that the traceable fixed costs of one segment may be a common fixed cost of another segment Segment Margin  Computed by subtracting the traceable fixed costs of a segment from its contribution margin  It is the best gauge of the long-run profitability of a segment  On an income statement o Contribution margin is computed by taking sales minus variable costs o Segment margin is a division's contribution to profits o Break-even analysis- computed by dividing the sum of the company's traceable fixed costs and common fixed costs by the company's overall contribution margin ratio  A business segment's break-even point is computed by dividing its traceable fixed costs by its contribution margin ratio September 27 Notes All Notes for Chapter 6 Omission of Costs- costs assigned to a segment should include all costs attributable to that segment from the company's entire value chain Common Costs and Segments  Common costs should not be arbitrarily allocated to segments based on the rationale that "someone has to cover the common costs" for two reasons 1. This practice may make a profitable business segment appear to be unprofitable 2. Allocating common fixed costs forces managers to be held accountable for costs they cannot control


Buy Material

Are you sure you want to buy this material for

25 Karma

Buy Material

BOOM! Enjoy Your Free Notes!

We've added these Notes to your profile, click here to view them now.


You're already Subscribed!

Looks like you've already subscribed to StudySoup, you won't need to purchase another subscription to get this material. To access this material simply click 'View Full Document'

Why people love StudySoup

Jim McGreen Ohio University

"Knowing I can count on the Elite Notetaker in my class allows me to focus on what the professor is saying instead of just scribbling notes the whole time and falling behind."

Amaris Trozzo George Washington University

"I made $350 in just two days after posting my first study guide."

Jim McGreen Ohio University

"Knowing I can count on the Elite Notetaker in my class allows me to focus on what the professor is saying instead of just scribbling notes the whole time and falling behind."

Parker Thompson 500 Startups

"It's a great way for students to improve their educational experience and it seemed like a product that everybody wants, so all the people participating are winning."

Become an Elite Notetaker and start selling your notes online!

Refund Policy


All subscriptions to StudySoup are paid in full at the time of subscribing. To change your credit card information or to cancel your subscription, go to "Edit Settings". All credit card information will be available there. If you should decide to cancel your subscription, it will continue to be valid until the next payment period, as all payments for the current period were made in advance. For special circumstances, please email


StudySoup has more than 1 million course-specific study resources to help students study smarter. If you’re having trouble finding what you’re looking for, our customer support team can help you find what you need! Feel free to contact them here:

Recurring Subscriptions: If you have canceled your recurring subscription on the day of renewal and have not downloaded any documents, you may request a refund by submitting an email to

Satisfaction Guarantee: If you’re not satisfied with your subscription, you can contact us for further help. Contact must be made within 3 business days of your subscription purchase and your refund request will be subject for review.

Please Note: Refunds can never be provided more than 30 days after the initial purchase date regardless of your activity on the site.