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# Managerial Accounting 15th ed Chapter 6A

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Managerial Accounting 15th ed Chapter 6A

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### Managerial Accounting 15th ed Chapter 6A

1. 1. PowerPoint Authors: Susan Coomer Galbreath, Ph.D., CPA Charles W. Caldwell, D.B.A., CMA Jon A. Booker, Ph.D., CPA, CIA Cynthia J. Rooney, Ph.D., CPA Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Super-variable Costing Appendix 6A
2. 2. 6A-2 Learning Objective 6 (Appendix 6A) Prepare an income statement using super- variable costing and reconcile this approach with variable costing.
3. 3. 6A-3 Overview of Variable and Super- variable Costing Direct Materials Direct Labor Fixed Manufacturing Overhead Fixed Selling and Administrative Expenses Variable Costing Super- variable Costing ProductProduct CostsCosts PeriodPeriod CostsCosts ProductProduct CostCost PeriodPeriod CostsCosts Super-variable costing classifies all direct labor and manufacturing overhead costs as fixed period costs and only direct materials as a variable product cost. To simplify, in this appendix we also assume that selling and administrative expenses are entirely fixed.
4. 4. 6A-4 Unit Cost Computations Harvey Company produces a single product with the following information available: Number of units produced annually 25,000 Variable costs per unit: Direct materials 7\$ Fixed costs per year: Direct labor 75,000\$ Manufacturing overhead 150,000\$ Selling & administrative expenses 100,000\$
5. 5. 6A-5 Unit product cost is determined as follows: Super- variable Costing Variable Costing Direct materials 7\$ 7\$ Direct Labor (\$75,000 ÷ 25,000 units) 3 Unit product cost 7\$ 10\$ Unit Cost Computations Under super-variable costing, only the direct material costs are included in product costs. Under variable costing, direct materials and direct labor are included when determining unit product cost.
6. 6. 6A-6 Let’s assume the following additional information for Harvey Company. ▫ 20,000 units were sold during the year at a price of \$30 each. ▫ There is no beginning inventory. Now, let’s compute net operating income using both super-variable and variable costing. Variable and Super-variable Costing Income Statements
7. 7. 6A-7 Super-variable Costing Contribution Format Income Statement Super-variable Costing Sales (20,000 × \$30) 600,000\$ Less variable expenses: Direct material (20,000 × \$7) 140,000 Contribution margin 460,000 Less fixed expenses: Direct labor 75,000\$ Fixed manufacturing overhead 150,000 Fixed selling & administrative expenses 100,000 325,000 Net operating income 135,000\$ Direct material costs only. All direct labor costs are expensed.
8. 8. 6A-8 Variable Costing Sales (20,000 × \$30) 600,000\$ Less variable expenses: Variable cost of goods sold (20,000 × \$10) 200,000 Contribution margin 400,000 Less fixed expenses: Fixed manufacturing overhead 150,000\$ Fixed selling & administrative expenses 100,000 250,000 Net operating income 150,000\$ Direct material and direct labor costs. Direct labor cost deferred in inventory is 5,000 units × \$3 = \$15,000. Variable Costing Contribution Format Income Statement
9. 9. 6A-9 Cost of Goods Sold Ending Inventory Period Expense Total Variable costing Direct material 140,000\$ 35,000\$ -\$ 175,000\$ Direct labor 60,000 15,000 75,000 200,000\$ 50,000\$ -\$ 250,000\$ Super-variable costing Direct Material 140,000\$ 35,000\$ -\$ 175,000\$ Direct labor - - 75,000 Fixed mfg. costs - - 150,000 225,000 140,000\$ 35,000\$ 225,000\$ 400,000\$ Comparing the Two Methods
10. 10. 6A-10 Direct labor \$75,000 Units produced 25,000 units = = \$3 per unit We can reconcile the difference between super-variable and variable income as follows: Super-variable costing net operating income 135,000\$ Add: Direct labor costs deferred in inventory (5,000 units × \$3 per unit) 15,000 Variable costing net operating income 150,000\$ Comparing the Two Methods
11. 11. 6A-11 Extended Comparisons of Income Data Harvey Company – Year Two Number of units produced 25,000 Number of units sold 30,000 Units in beginning inventory 5,000 Unit sales price 30\$ Variable costs per unit: Direct materials 7\$ Fixed costs per year: Direct labor 75,000\$ Manufacturing overhead 150,000\$ Selling & administrative expenses 100,000\$
12. 12. 6A-12 Since the variable costs per unit, total fixed costs,Since the variable costs per unit, total fixed costs, and the number of units produced remainedand the number of units produced remained unchanged, the unit cost computations alsounchanged, the unit cost computations also remain unchanged.remain unchanged. Super- variable Costing Variable Costing Direct materials 7\$ 7\$ Direct Labor (\$75,000 ÷ 25,000 units) 3 Unit product cost 7\$ 10\$ Unit Cost Computations
13. 13. 6A-13 Super-variable Costing Sales (30,000 × \$30) 900,000\$ Less variable expenses: Direct material (30,000 × \$7) 210,000 Contribution margin 690,000 Less fixed expenses: Direct labor 75,000\$ Fixed manufacturing overhead 150,000 Fixed selling & administrative expenses 100,000 325,000 Net operating income 365,000\$ Direct material costs only. All direct labor costs are expensed. Super-variable Costing Contribution Format Income Statement
14. 14. 6A-14 Variable Costing Contribution Format Income Statement Variable Costing Sales (30,000 × \$30) 900,000\$ Less variable expenses: Variable cost of goods sold (30,000 × \$10) 300,000 Contribution margin 600,000 Less fixed expenses: Fixed manufacturing overhead 150,000\$ Fixed selling & administrative expenses 100,000 250,000 Net operating income 350,000\$ Direct material and direct labor costs. Direct labor cost released from inventory is 5,000 units × \$3 = \$15,000.
15. 15. 6A-15 Comparing the Two Methods Direct labor \$75,000 Units produced 25,000 units = = \$3 per unit We can reconcile the difference between super-variable and variable income as follows: Super-variable costing net operating income 365,000\$ Deduct: Direct labor costs released from inventory (5,000 units × \$3 per unit) 15,000 Variable costing net operating income 350,000\$
16. 16. 6A-16 Costing Method 1st Period 2nd Period Total Super-variable 135,000\$ 365,000\$ 500,000\$ Variable 150,000 350,000 500,000 Comparing the Two Methods
17. 17. 6A-17 End of Appendix 6A