Variable costing

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Variable costing

  1. 1. 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.
  2. 2. 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.
  3. 3. 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.
  4. 4. Variable Costing IncomeStatement1. The format uses a contribution margin approach.2. All costs, manufacturing, selling and administrative, are classified as either fixed or variable.
  5. 5. Variable Costing IncomeStatement ExampleSales $100,000Less Variable: Variable COGS $20,000 Variable Selling 10,000 Variable Admin. 5,000 35,000Contribution Margin 65,000Less Fixed: Fixed Mfg. 10,000 Fixed Selling 8,000 Fixed Admin 7,000 25,000Net Income 40,000
  6. 6. Full (Absorption) CostingIncome Statement ExampleSales $100,000Less COGS 30,000Gross Margin 70,000Less Selling and Admin: Selling 18,000 Admin 12,000 30,000Net Income 40,000
  7. 7. Quick Review Question #11. Which of the following lends itself well to C-V-P Analysis? a. Full Costing b. Absorption Costing c. Variable Costing d. Average Costing
  8. 8. Quick Review Answer #11. Which of the following lends itself well to C-V-P Analysis? a. Full Costing b. Absorption Costing c. Variable Costing d. Average Costing
  9. 9. Quick Review Question #22. Which of the following complies with GAAP for external reporting purposes? a. Absolute costing b. Variable costing c. Fixed costing d. Absorption costing
  10. 10. Quick Review Answer #22. Which of the following complies with GAAP for external reporting purposes? a. Absolute costing b. Variable costing c. Fixed costing d. Absorption costing
  11. 11. Quick Review Question #33. Which of the following lends itself well to internal decision making? a. Full costing b. Variable costing c. Absorption costing d. None of these
  12. 12. Quick Review Answer #33. Which of the following lends itself well to internal decision making? a. Full costing b. Variable costing c. Absorption costing d. None of these

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