Managerial Accounting Garrison 14th ed chapter 6 soulution

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1、Chapter06VariableCostingandSegmentReporting:ToolsforManagementChapter06VariableCostingandSegmentReporting:ToolsforManagementSolutionstoQuestions6-1Absorptionandvariablecostingdifferinhowtheyhandlefixedmanufacturingoverhead.Underabsorptioncosting,fixedmanufacturingoverheadistreatedasaproductcostandh

2、enceisanassetuntilproductsaresold.Undervariablecosting,fixedmanufacturingoverheadistreatedasaperiodcostandisexpensedonthecurrentperiod’sincomestatement.6-2Sellingandadministrativeexpensesaretreatedasperiodcostsunderbothvariablecostingandabsorptioncosting.6-3Underabsorptioncosting,fixedmanufacturing

3、overheadcostsareincludedinproductcosts,alongwithdirectmaterials,directlabor,andvariablemanufacturingoverhead.Ifsomeoftheunitsarenotsoldbytheendoftheperiod,thentheyarecarriedintothenextperiodasinventory.Whentheunitsarefinallysold,thefixedmanufacturingoverheadcostthathasbeencarriedoverwiththeunitsisi

4、ncludedaspartofthatperiod’scostofgoodssold.6-4Absorptioncostingadvocatesarguethatabsorptioncostingdoesabetterjobofmatchingcostswithrevenuesthanvariablecosting.Theyarguethatallmanufacturingcostsmustbeassignedtoproductstoproperlymatchthecostsofproducingunitsofproductwiththerevenuesfromtheunitswhenthe

5、yaresold.Theybelievethatnodistinctionshouldbemadebetweenvariableandfixedmanufacturingcostsforthepurposesofmatchingcostsandrevenues.6-5Advocatesofvariablecostingarguethatfixedmanufacturingcostsarenotreallythecostofanyparticularunitofproduct.Ifaunitismadeornot,thetotalfixedmanufacturingcostswillbeexa

6、ctlythesame.Therefore,howcanonesaythatthesecostsarepartofthecostsoftheproducts?Thesecostsareincurredtohavethecapacitytomakeproductsduringaparticularperiodandshouldbechargedagainstthatperiodasperiodcostsaccordingtothematchingprinciple.6-6Ifproductionandsalesareequal,netoperatingincomeshouldbethesame

7、underabsorptionandvariablecosting.Whenproductionequalssales,inventoriesdonotincreaseordecreaseandthereforeunderabsorptioncostingfixedmanufacturingoverheadcostcannotbedeferredininventoryorreleasedfrominvento