- Weight average method makes no distinction between work done in the prior and current

periods. It blends together units and costs from prior and current.

- Traditional format used for external reporting.

- Contribution format used by management.

- Ket assumptions of CVP analysis

1. Selling price is constant

2. Costs are linear and accurately divided into variable(constant per unit) and
fixed(constant in total) element. – within relevant range

3. Sales mix is constant. Sales mix means relative percentages in which a company sells
its products.

- Cm ratio = CM per unit/Selling price per unit =CM/Total sales

- High fixed cost structure is economy of scale. Good year->good

- Low fixed cost structure has greater stability.

- Variable costing for purpose of Managerial Accounting

- Absorption costing for GAAP&IFRS

- Unit produced=unit sold -> no change inventory -> absorption=variable

Unit produced>unit sold -> inventory increase -> absorption>variable

Unit produced<unit sold -> inventory decrease -> absorption<variable

- Variable costing is good for CVP analysis

Absorption isn’t

Variable costing is affected by changes in unit sales

absorption costing is affected by changes in unit sales and units of production.

- Allocating common fixed costs to segment can make to be unprofitable. And force segment
managers to be held accountable for costs they can’t control