[Nessie]

Becker Question –

Just going through my final review for my BEC exam tomorrow and wondering on page 5 of Lecture B2….Why in the pass key ( for Variable costing ) do period costs include Variable SG&A, but right below, it is part of CM.

Thanks so much in advance

REG Aug 20/15: 88
AUD: Feb 29/16: 80
FAR: Jun 10/16: 80
BEC?

Becker self-study, Becker Final Review & NINJA MCQS

[Anonymous]

CM = Selling price less variable cost so it's logical that any variable SG&A costs are included in the calculation.

[aaronmo]

If you're using Becker, I had the WORST time with this and they did a piss poor job explaining it. On one page selling/shipping VC is deducted for CM, and in another example on internal income statements it isn't.

I THINK it depends on the purpose…if you're doing an internal income statement for budgeting using the contribution method, the VC selling expenses are period costs. If you're doing analysis like break even point and gp, it IS included in the CM.

That's my interpretation anyway. It's NOT just you.

[aaronmo]

I sent a question on this to a Becker instructor a couple of days ago BTW…I almost never get back useful answers, but if I do, I'll update you.

[Anonymous]

Don't get COGS confused with CM. The COGS for variable costing would include both variable and fixed costs whereas CM would only include variable costs. Not sure if this is the issue but it was something that confused me at first.

[aaronmo]

That's sort of what I'm saying Bond, except that what you wrote above is incorrect.

For the variable costing method, neither fixed MOH or sga, or fixed period costs are included in inventory (COGS). They're expenses.

For ABSORPTION method, the fixed MOH IS included in inventory/COGS. SGA and fixed period are expenses.

However, throughout the MC, and in other sections, variable sga costs – particularly shipping costs – are included in the contribution margin calculations to arrive at CM.

As stated earlier…I believe it's:

For variable costing income statements/budgets, you DON'T include SGA.
For CM calculations relating to profit analysis, you do.

I am not 100% confident in this answer, but I believe it's correct as far as how Becker asks the questions.

[Nessie]

WoW! Thanks aaronmo & BV, I just signed back on and saw all of the responses. Thanks guys, I’m going to look over what you wrote in detail. I just hope I don’t get a question for this!

REG Aug 20/15: 88
AUD: Feb 29/16: 80
FAR: Jun 10/16: 80
BEC?

Becker self-study, Becker Final Review & NINJA MCQS

[aaronmo]

No worries Nessie…let me know if my answer made sense.

I SUSPECT that when it comes to contribution vs. Absorption method, the key is to remember that fixed MOH goes to inventory/COGS for absorption, with higher income. I think most of the questions for CM are going to be production and break even questions…where ALL variable costs are, logically, relevant and part of CM.

[Author]

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