JJ05 - 1 Variable Costing Chapter 5: Full (Absorption)...

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Unformatted text preview: 1 Variable Costing Chapter 5: Full (Absorption) Costing 1. 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 Costing 1. Variable Costing includes: a. Direct material b. Direct labor c. Variable Manufacturing overhead 2. Variable Costing lends itself well to decision making and what-if analyses. 3. Not allowed for GAAP. 2 Differences Between Full (Absorption) and Variable Costing 1. 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 Income Statement 1. The format uses a contribution margin approach. 2. All costs, manufacturing, selling and administrative, are classified as either fixed or variable . Variable Costing Income Statement Example Sales $100,000 Less Variable: Variable COGS $20,000 Variable Selling 10,000 Variable Admin. 5,000 35,000 Contribution Margin 65,000 Less Fixed: Fixed Mfg. 10,000 Fixed Selling 8,000 Fixed Admin 7,000 25,000 Net Income 40,000 3 Full (Absorption) Costing Income Statement Example Sales $100,000 Less COGS 30,000 Gross Margin...
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This note was uploaded on 05/12/2010 for the course ACG 5065 taught by Professor Asare during the Spring '08 term at University of Florida.

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JJ05 - 1 Variable Costing Chapter 5: Full (Absorption)...

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