Fifth edition Alnoor Bhimani Charles T. Horngren Srikant M. Datar Madhav V. Rajan Farah Ahamed



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solutions-manual-to-bhimani-et-al-management-and-cost-accounting-pearson-2012-1
2
Year 1 Year
2
Variable costing Operating profit
€400
€700 Closing stock

200

100 Absorption costing Operating profit
€600
€640 Closing stock

400

240 Fixed manuf. overhead
in opening stock
0

200
• in closing stock
200

140 Absorption Variable costing costing operating operating income income



=
Fixed
Fixed manuf.costs –
manuf.costs in closing in opening stock stock
Year 1: €600 − €400
=
€200 − €0
= €200 Year 2: €640 − €700
=
€140 − €200
=
−€60


Bhimani, Horngren, Datar and Rajan, Management and Cost Accounting, 5
th
Edition, Instructor’s Manual
© Pearson Education Limited 2012
3
a
Absorption costing is more likely than variable costing to lead to stock buildups. Under absorption costing, operating profit in a given accounting period is increased because some fixed manufacturing costs are accounted for as an asset stock) instead of as a cost of the current period.
b
Although variable costing will counteract undesirable stock buildups, other measures can be used without abandoning absorption costing. Examples include budget targets and non-financial measures of performance such as maintaining specific stock levels, stock turnovers, delivery schedules and equipment maintenance schedules.
7.17

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