Which method do you think allows for the greatest manipulation of net income: variable or absorption costing and why? Discuss any ethical concerns associated with your answer.
The difference between absorption costing and variable costing methods pertains mainly to the allocation of manufacturing costs and its effect on reporting of net income. Both absorption and variable cost methods are based on the accrual concept of accounting and are recognized as when they are incurred.
Under the absorption costing method, sales and marketing expenses are treated as a period cost and hence expenses are recorded as and when incurred.
In the variable costing method, product cost includes just the direct costs and variable manufacturing costs; while in absorption cost accounting, product cost also includes fixed manufacturing overheads. Thus, fixed costs are treated as a part of the production system in absorption costing.
Variable cost accounting leads to a lower product cost. Under an absorption cost method, management can record costs incurred in the current period to the next period when products are actually sold. This artificially inflates profits in the period of production by incurring less cost than would be incurred under a variable costing system.
Therefore, Variable costing will report a lower amount of profit while absorption costing will inflate the profits. Variable cost accounting is useful for internal management’s decision-making purposes because it reveals the actual profit or loss for the current year, On the other hand, absorption cost accounting is useful for creditors, government agencies, suppliers, etc.
Which method do you think allows for the greatest manipulation of net income: variable or absorption...
Which method (Variable or Absorption) do you think provides the most accurate net income? Please include a discussion of the differences between the two costing methods as a part of your explanation. Please be sure to validate your opinions and ideas with citations and references in APA format.
Do you think it is ethical to design your own baby through gene manipulation
Variable and Absorption Costing Summarized data for 2019 (the first year of operations) for Gorman Products, Inc., are as follows: Sales (70,000 units) $2,800,000 Production costs (80,000 units) 880,000 Direct material Direct labor 720,000 Manufacturing overhead: Variable 544,000 Fixed 320,000 Operating expenses: Variable 175,000 Fixed 240,000 Depreciation on equipment 60,000 Real estate taxes 18,000 Personal property taxes (inventory & equipment) 28,800 Personnel department expenses 30,000 a. Prepare an income statement based on full absorption costing. Only use a negative sign...
Absorption costing net income will be the same as variable costing net income if: a) selling and admin expenses are the same b) there is no beginning or ending inventory c) there are no variable overhead costs d) sales revenues are the same as the previous reporting period
Variable and Absorption Costing Summarized data for 2019 the first year of operations) for Gorman Products, Inc., are as follows: Sales (70.000 units) Production COSES 80,000 units Direct material Direct labor Manufacturing overhead Operating expenses Depreciation on equipment Real estate taxes Personal property taxes inventory equipment Personnel department expenses 2800 2000 a. Prepare an income statement based on full absorption costing Only use a negative sign with your answer for net income loss if the answer represents a netlos. Otherwise...
Variable and Absorption Costing Summarized data for 2016 (the first year of operations) for Gorman Products, Inc., are as follows: Sales (75,000 units) $3,000,000 Production costs (80,000 units) Direct material 880,000 Direct labor 720,000 Manufacturing overhead: Variable 544,000 Fixed 320,000 Operating expenses: Variable 168,000 Fixed 240,000 Depreciation on equipment 60,000 Real estate taxes 18,000 Personal property taxes (inventory & equipment) 28,800 Personnel department expenses 30,000 a. Prepare an income statement based on full absorption costing. Only use a negative sign...
Variable and Absorption Costing Summarized data for 2016 (the first year of operations) for Gorman Products, Inc., are as follows: Sales (75,000 units) $4,500,000 Production costs (80,000 units) Direct material 1,320,000 Direct labor 1,080,000 Manufacturing overhead: Variable 816,000 Fixed 480,000 Operating expenses: Variable 252,000 Fixed 360,000 Depreciation on equipment 90,000 Real estate taxes 27,000 Personal property taxes inventory & equipment) 43,200 Personnel department expenses 45,000 a. Prepare an income statement based on full absorption costing, Only use a negative sign...
Which method; activity-based costing (ABC) or traditional costing do you think is a better approach to costing and why? Be sure to include in your discussion how you think the method you selected is helpful to managers and would benefit the company as a whole.
In 20x6, Supra Ltd.’s net income computed using the variable costing method was $17007, and its net income computed using the absorption costing method was $24644. The company’s unit product cost was $7.15 under variable costing and $13.91 under absorption costing. The beginning inventory consisted of 3452 units. What was the company’s ending inventory in units? Select one: a. 47980 units b. 4582 units c. 1000 units d. 3452 units
Variable and Absorption Costing Chandler Company sells its product for $100 per unit. Variable manufacturing costs per unit are $40, and fixed manufacturing costs at the normal operating level of 12,000 units are $240,000. Variable selling expenses are $16 per unit sold. Fixed administrative expenses total $104,000. Chandler had no beginning inventory in 2016. During 2016, the company produced 12,000 units and sold 9,000. Would net income for Chandler Company in 2016 be higher if calculated using variable costing or...