LO1

Explain how variable costing differs from absorption costing and compute unit product costs under each method.

LO2

Prepare income statements using both variable and absorption costing.

LO3

Reconcile variable costing and absorption costing net operating incomes and explain why the two amount differ.

LO4

Understand the advantages and disadvantages of both variable and absorption costing.

LO5

(Appendix 5A) Compute predetermined overhead rates and explain why estimated overhead costs (rather than actual overhead costs) are used in the costing process.

LO6

(Appendix 5A) Understand the implications of basing the predetermined overhead rate on activity at capacity rather than on estimated activity for the period.

LO7

(Appendix 5B) Compute underapplied or overapplied overhead cost and prepare the journal entry to close the balance in Manufacturing Overhead to the appropriate accounts.

LO8

(Appendix 5C) Expalin the potential problems of using absorption costing.