In Each of the Following Cases Indicate Whether the Change

question 33

Essay

In each of the following cases indicate whether the change in profits due to the spread effect was (i)greater than (ii)less than,or (iii)equal to the change in profitability due to the repricing GAP. In some cases you may not be able to tell; indicate which ones.

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Definitions:

Variable Costing

A costing method that includes only variable manufacturing costs - direct materials, direct labor, and variable manufacturing overhead - in the cost of goods sold.

Absorption Costing

In this method of accounting, the price of manufacturing a product is calculated by summing the costs of direct materials, direct labor, and all manufacturing overheads, variable and fixed alike.

Fixed Manufacturing Overhead

The total of all costs related to manufacturing that do not change with the level of production, such as salaries of managers and rent of the factory.

Divisional Segment Margin

The profit margin for a specific division or segment of a company, calculated by subtracting direct and allocated expenses from segment revenues.