Maliyet Muhasebesi Inventory Costing and Capacity Analysis 9 - 1 Inventory Costing and Capacity Analysis Chapter 99 - 2 Introduction The reported income number captures the * attention of managers in a way few other numbers do. This chapter examines two types of cost * accounting choices for inventories that affect the operating income of manufacturing companies.9 - 3 Learning Objectives Identify the fundamental feature that 1. distinguishes variable costing from absorption costing Prepare income statements under absorption 2. costing and variable costing Explain differences in operating income 3. under absorption costing and variable costing Differentiate throughput costing from 4. variable costing and absorption costing9 - 4 Learning Objective 1 Identify the fundamental feature that distinguishes variable costing from absorption costing9 - 5 Inventory-Costing Methods Variable costing is a method of inventory * costing in which all variable manufacturing costs are included as inventoriable costs. Absorption costing is a method of inventory * costing in which all variable manufacturing costs and all fixed manufacturing costs are included as inventoriable costs.9 - 6 Inventory-Costing Methods Variable costing and absorption costing * methods differences are based on the treatment of fixed manufacturing overhead.9 - 7 Under variable costing , fixed MOH costs are * treated as an expense of the period. Inventoriable Costs DM+DL+Variable MOH Under absorption costing , fixed MOH costs are * inventoriable costs. Inventoriable Costs DM+DL+Variable MOH+Fixed MOH Inventory-Costing Methods9 - 8 Inventory-Costing Methods Under both methods all nonmanufacturing * costs in the value chain (such as research and development and marketing), whether variable or fixed, are recorded as expenses when incurred.9 - 99 - 109 - 11 Learning Objective 2 Prepare income statements under absorption costing and variable costing9 - 12 Comparing Income Statements The following data pertain to Fredonia Fixtures: * Finished goods Year 1 Year 2 Total * Inventory Units Beginning inventory -0- 2,000 -0- Produced 10,000 11,000 21,000 Sold 8,000 13,000 21,000 Ending inventory 2,000 -0- -0-9 - 13 Comparing Income Statements The following information is on a per unit * basis: Sales price: $71.00 * Variable manufacturing costs: * Direct materials: $4.00 Direct manufacturing labor: $21.00 Indirect manufacturing costs: $24.00 Fixed manufacturing costs $4.50 *9 - 14 Inventoriable Cost Per Unit What is the * inventoriable cost per unit using variable costing? DM $4 DL $21 Variable MOH $24 TOTAL $49 What is the * inventoriable cost per unit using absorption costing? DM $4 DL $21 Variable MOH $24 Fixed MOH $4.5 TOTAL $53.59 - 15 Comparing Income Statements (Absorption Costing) Total fixed production costs are $54,000 * at a normal capacity of 12,000 units. Fixed nonmanufacturing costs are $30,000 * per year. Variable nonmanufacturing costs are $2.00 * per unit sold.9 - 16 Comparing Income Statements (Absorption Costing) What are the revenues for Year 1? * 8,000 × $71 = $568,000 * What is the cost of goods sold? * 8,000 × $53.50 = $428,000 * Is there a volume variance? * Volume variance= (Normal capacity-Actual * production) x Fixed cost per unit (12,000 – 10,000) × $4.50 = $9,000 underallocated fixed manufacturing costs9 - 17 Comparing Income Statements (Absorption Costing) What is the gross margin? * $568,000 – ($428,000 + $9,000) = $131,000 * What are the nonmanufacturing costs? * 8,000 units sold × $2.00 = $16,000 variable * costs + $30,000 fixed costs = $46,0009 - 18 Comparing Income Statements (Absorption Costing) What is the operating income before taxes? * $131,000 – $46,000 = $85,000 *9 - 19 Comparing Income Statements (Absorption Costing) Absorption * Revenues $568,000 Cost of goods sold 428,000 * Volume variance (U) 9,000 * Gross margin $131,000 * Nonmanufacturing costs 46,000 * Operating income $ 85,000 *9 - 20 Comparing Income Statements (Variable Costing) What are the revenues for Year 1? * 8,000 × $71 = $568,000 * What is the cost of goods sold? * 8,000 × $49 = $392,000 * What is the manufacturing contribution * margin? $568,000 – $392,000 = $176,000 *9 - 21 Comparing Income Statements (Variable Costing) What is the net contribution margin? * $176,000 – $16,000 variable nonmanufacturing * costs = $160,000 net contribution margin. What is the operating income before taxes? * $160,000 – $54,000 fixed indirect * manufacturing costs – $30,000 fixed nonmanufacturing costs = $76,0009 - 22 Comparing Income Statements (Variable Costing) Variable * Revenues $568,000 Cost of goods sold 392,000 * Variable nonmanufacturing costs 16,000 * Contribution margin $160,000 * Fixed manufacturing costs 54,000 * Fixed nonmanufacturing costs 30,000 * Operating income $ 76,000 *9 - 23 Learning Objective 3 Explain differences in operating income under absorption costing and variable costing9 - 24 Operating Income (Absorption Costing) What are revenues for Year 2? * 13,000 × $71 = $923,000 * What is the cost of goods sold? * 13,000 × $53.50 = $695,500 * Is there a volume variance? * (12,000 – 11,000) × $4.50 = $4,500 * underallocated fixed manufacturing costs9 - 25 Operating Income (Absorption Costing) What is the gross margin? * $923,000 – ($695,500 + $4,500 ) = $223,000 * What are the nonmanufacturing costs? * 13,000 units sold × $2.00 = $26,000 variable * costs + $30,000 fixed costs = $56,0009 - 26 Operating Income (Absorption Costing) What is the operating income before taxes? * $223,000 – $56,000 = $167,000 * What is the operating income for the two * years combined? $85,000 + $167,000 = $252,000 *9 - 27 Income Statements (Absorption Costing) Year 1 Year 2 Combined * Revenues $568,000 $923,000 $1,491,000 Cost of goods sold 428,000 695,500 1,123,500 * Volume variance (U) 9,000 4,500 13,500 * Gross margin $131,000 $223,000 $ 354,000 * Nonmfg. costs 46,000 56,000 102,000 * Operating income $ 85,000 $167,000 $ 252,000 *9 - 28 Operating Income (Variable Costing) Revenues for Year 2 are $923,000. * What is the cost of goods sold? * 13,000 × $49 = $637,000 * What is the manufacturing contribution * margin? $923,000 – $637,000 = $286,000 *9 - 29 Operating Income (Variable Costing) What is the net contribution margin? * $286,000 – $26,000 variable * nonmanufacturing costs = $260,000 net contribution margin What is the operating income before taxes? * $260,000 – $54,000 fixed manufacturing costs * – $30,000 fixed nonmanufacturing costs = $176,0009 - 30 Operating Income (Variable Costing) What is the combined operating income for * the two years under variable costing? $76,000 + $176,000 = $252,000 *9 - 31 Income Statements (Variable Costing) Year 1 Year 2 Combined * Revenues $568,000 $923,000 $1,491,000 Cost of goods sold 392,000 637,000 1,029,000 * Mfg. contr. margin $176,000 $286,000 $ 462,000 * Variable nonmfg. 16,000 26,000 42,000 * Net contr. margin $160,000 $260,000 $ 420,000 * Fixed mfg. costs 54,000 54,000 108,000 * Fixed nonmfg. costs 30,000 30,000 60,000 * Operating income $ 76,000 $176,000 $252,000 *9 - 32 Comparison of Variable and Absorption Costing Inventory values are smaller with variable * costing because it capitalizes only $49.00 variable cost as asset. Inventory values using absorption costing * have an additional $4.50 fixed factory overhead per unit.9 - 33 Comparison of Variable and Absorption Costing Variable costing operating income Year 1: * $76,000 Absorption costing operating income Year 1: $85,000 Absorption costing operating income is $9,000 * higher. Why? *9 - 34 Comparison of Variable and Absorption Costing Production exceeds sales in Year 1. * The 2,000 units in ending inventory are valued * as follows: Absorption costing Variable costing 2,000 × $53.50 = 2,000 × $49 = $107,000 $98,000 $9,000 Difference9 - 35 Comparison of Variable and Absorption Costing Fixed manufacturing costs in ending inventory * are deferred to a future period under absorption costing. One problem with absorption costing is that it * enables a manager to increase operating income in a period by increasing production- even if there is no customer demand. This causes inventory buildup !9 - 36 Comparison of Variable and Absorption Costing Variable costing operating income Year 2: * $176,000 Absorption costing operating income Year 2: * $167,000 Variable costing operating income is $9,000 * higher. Why? *9 - 37 Comparison of Variable and Absorption Costing Sales exceeded units produced in Year 2. * 13,000 – 11,000 = 2,000 decrease in inventory * Absorption costing: * 2,000 × $53.50 = $107,000 Variable costing: 2,000 * × $49.00 = $98,000 $107,000– $98,000= $9,000 higher cost of * goods sold under absorption costing9 - 38 Comparison of Variable and Absorption Costing Absorption costing operating income * Variable costing operating income – Fixed manufacturing costs in ending = inventory under absorption costing Fixed manufacturing costs in beginning – inventory under absorption costing9 - 39 Comparison of Variable and Absorption Costing Year 2 Absorption costing operating income $167,000 * – Variable costing operating income $176,000 = ($9,000) under absorption costing * Fixed MOH cost in ending inventory $0 – Fixed MOH cost in beginning inventory $9,000 = ($9,000)9 - 40 Comparison of Variable and Absorption Costing Variable costing combined net income: * $252,000 Absorption costing combined net income: * $252000 Difference: $254,250 – $252,000 = $0 *9 - 41 Comparative Income Effects of Variable Costing and Absorption Costing How do changes in unit inventory levels * affect operating income ? Variable Costing Absorption Costing Production=Sales Equal Equal Production>Sales Lower Higher Production