Full (Absorption) Costing1. Full (Absorption) Costing includes: a. Direct material b. Direct labor c. Manufacturing overhead (both variable and fixed)2. Decision making and “what-if” decisions are difficult because of the commingling of fixed and variable overhead.3. Required for GAAP.
Variable Costing1. Variable Costing includes: a. Direct material b. Direct labor c. Variable Manufacturing overhead2. Variable Costing lends itself well to decision making and “what-if” analyses.3. Not allowed for GAAP.
Differences Between Full(Absorption) and VariableCosting1. Fixed manufacturing overhead (included in Full Costing).2. Fixed manufacturing costs, like depreciation, are a period expense on the income statement under variable costing.3. Fixed manufacturing costs, like depreciation, are inventoried until sold under full costing.
Variable Costing IncomeStatement1. The format uses a contribution margin approach.2. All costs, manufacturing, selling and administrative, are classified as either fixed or variable.