Managerial Accounting Assignment: Variable vs Absorption Costing

This managerial accounting assignment solution addresses key concepts including variable and absorption costing methods. It provides detailed calculations of unit product costs under both methods, along with the preparation of contribution format and absorption costing income statements. The solution also includes a break-even analysis in terms of units sold. The assignment covers a comparison between variable and absorption costing, and reconciles operating income under both methods. The solution is designed to help students understand and apply managerial accounting principles effectively, providing a comprehensive analysis of the financial implications of different costing approaches. The assignment uses data from a case study of Refined Elegance Corp and Death Star Corporation to illustrate the concepts.

Running head: MANAGERIAL ACCOUNTING
Managerial Accounting
Name of the Student:
Name of the University:
Author’s Note:
Course ID:

1MANAGERIAL ACCOUNTING
Table of Contents
Answer to Question 1:................................................................................................................2
Answer to Question 2:................................................................................................................3
Unit product cost under variable costing:..............................................................................3
Contribution format income statement:.................................................................................3
Break-even point in terms of units sold:................................................................................4
Answer to Question 3:................................................................................................................4
Unit product cost under absorption costing:..........................................................................4
Income statement:..................................................................................................................5
Answer to Question 4:................................................................................................................5
Answer to Question 5:................................................................................................................6
Total contribution margin and operating income under variable costing:.............................6
Reconciliation statement for computing operating income under absorption costing:..........6
References:.................................................................................................................................7

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Answer to Question 1:
Certain differences are deemed to be observed between variable costing and
absorption costing, which are enumerated briefly in the form of a table as follows:
Basis of comparison Variable costing Absorption costing
Concept Variable costing is a method of
accounting, which is used for
assigning production costs to the
manufactured products by not
taking into consideration fixed
expenses (Noreen, Brewer &
Garrison, 2014).
Absorption costing is a technique
of product costing, in which
variable and fixed expenses are
assigned to cost centres to account
for with the help of absorption
rates.
Fixed overhead
treatment
The fixed manufacturing costs are
treated in the form of period cost.
The fixed manufacturing costs are
treated in the form of product cost.
Contribution Contribution is calculated mainly in
this costing system.
Net income is computed mainly in
this costing system.
Difference in stock
valuation
The closing stock value would be
lower, as it is valued at variable
expense only.
The closing stock is valued at the
overall production cost including
variable and fixed costs, which
would increase its total value
(Weygandt, Kimmel & Kieso,
2015).
Reporting purpose It is used mainly for internal
reporting.
It is used mainly for external
reporting and computing taxable

3MANAGERIAL ACCOUNTING
income.
Answer to Question 2:
Unit product cost under variable costing:
Contribution format income statement:

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Break-even point in terms of units sold:
Answer to Question 3:
Unit product cost under absorption costing:

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Income statement:
Answer to Question 4:

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Answer to Question 5:
Total contribution margin and operating income under variable costing:
Reconciliation statement for computing operating income under absorption costing:

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References:
Noreen, E. W., Brewer, P. C., & Garrison, R. H. (2014). Managerial accounting for
managers. New York: McGraw-Hill/Irwin.
Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. (2015). Financial & managerial accounting.
John Wiley & Sons.