Absorption and Variable Costing (Cost Accounting)

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Absorption versus Variable Costing (Cost Accounting)

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Absorption and Variable Costing (Cost Accounting)

  1. 1. Joy Kenneth Sala Biasong, MBA, MPA, M.Ed., D.M., Ed.D., Ph.D.Graduate School ProfessorSY 2008-2009
  2. 2.  Absorption (Full) costing is a costingsystem which treats all costs of production asproduct costs, regardless whether they arevariable or fixed. Variable (Direct/ Marginal) costing is acosting system under which those costs ofproduction that vary with outputs are treated asproduct costs.(source: mgt for acctg)
  3. 3.  Variable Cost Fixed Cost Direct Cost Indirect Cost (Source: Statement of Financial Accounting Standards)
  4. 4. XYZ company that produces a single product has the following cost structure. Number of units produced 3,000Variable Costs Per UnitDirect Materials 2Direct Labor 3Variable Manufacturing Overhead 1Variable Selling and Administrative Expenses 2 Fixed Costs Per Year:Fixed Factory Overhead 50,000Fixed Marketing and Administrative Expenses 10,000
  5. 5. Compute the following:A. unit product cost under absorption costingmethod.B. unit product cost under variable / marginalcosting method.
  6. 6. Unit Product CostAbsorption Costing Method  Direct Materials 2Direct Labor 3Variable Manufacturing Overhead 1Total Variable Production Cost 6Add: Fixed Manufacturing Overhead 16.67 Unit Product Cost 22.67 
  7. 7. Unit Product CostVariable Costing Method Direct Materials 2Direct Labor 3Variable Manufacturing Overhead 1Unit Product Cost 6 
  8. 8. Activity(refer to handouts- ManagerialAccounting pages 3-8)AssessmentSolve accounting problems 1-10

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