This document discusses different costing methods and provides an example to calculate unit product costs using absorption and variable costing. Absorption costing treats all costs as product costs, while variable costing only treats variable costs as product costs. For a company producing 3,000 units with given variable and fixed costs, the unit product cost under absorption costing is $22.67 and under variable costing is $6.

1. Joy Kenneth Sala Biasong, MBA, MPA, M.Ed., D.M., Ed.D., Ph.D.
Graduate School Professor
SY 2008-2009

2.  Absorption (Full) costing is a costing
system which treats all costs of production as
product costs, regardless whether they are
variable or fixed.
 Variable (Direct/ Marginal) costing is a
costing system under which those costs of
production that vary with outputs are treated as
product costs.
(source: mgt for acctg)

3.  Variable Cost
 Fixed Cost
 Direct Cost
 Indirect Cost

 (Source: Statement of Financial Accounting Standards)

4. XYZ company that produces a single product has the following cost structure.
Number of units produced 3,000
Variable Costs Per Unit
Direct Materials 2
Direct Labor 3
Variable Manufacturing Overhead 1
Variable Selling and Administrative Expenses 2
Fixed Costs Per Year:
Fixed Factory Overhead 50,000
Fixed Marketing and Administrative Expenses 10,000

5. Compute the following:
A. unit product cost under absorption costing
method.
B. unit product cost under variable / marginal
costing method.

6. Unit Product Cost
Absorption Costing Method
Direct Materials 2
Direct Labor 3
Variable Manufacturing Overhead 1
Total Variable Production Cost 6
Add: Fixed Manufacturing Overhead 16.67
Unit Product Cost 22.67

7. Unit Product Cost
Variable Costing Method
Direct Materials 2
Direct Labor 3
Variable Manufacturing Overhead 1
Unit Product Cost 6

8. Activity
(refer to handouts- Managerial
Accounting pages 3-8)
Assessment
Solve accounting problems 1-10