Chapter 8 - V ariable Costing vs Absorption Costing There...

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Variable Costing vs. Absorption Costing There are two approaches to product costing : a. Under full or absorption costing all manufacturing costs are charged to the product. This is also the approach required under generally accepted accounting principles. b. Under variable costing only direct materials, direct labour, and variable manufacturing overhead costs are treated as product costs; fixed manufacturing overhead costs are recognized as period costs (expenses) when incurred. The primary difference between variable and absorption costing is that under variable costing the fixed manufacturing overhead is charged as an expense in the current period . The result is that absorption costing will show a higher net income number than variable costing whenever units produced exceed units sold. The reason: the cost of the ending inventory is higher under absorption costing than under variable costing. The effects of the alternative costing methods on income from
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This note was uploaded on 03/31/2010 for the course COMM COMM 305 taught by Professor Hilal during the Spring '09 term at Concordia Canada.

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Chapter 8 - V ariable Costing vs Absorption Costing There...

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