10014_032410_18 - SP $10 $10 Unit Costs: Absorption...

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Chapter 7 – Variable Costing vs. Absorption Costing Alternative methods of determining unit product cost which in turn, effects Finished Goods Inventory (Balance Sheet) and COGS (Income Statement) I. Key Elements Absorption Costing (Absp) Variable Costing (VC) 1. 1. Internal management reports 2. Product Costs 2. Product Costs DM DM DL DL VOH VOH *FOH* 3. Period Costs 3. Period Costs (100% expensed/yr) *FOH* * Matching – only the product sold expenses the product cost for the period (only expensing what you sell) Step 1: Determine your unit product cost for each costing method Step 2: “Where are my units?” Needed to compile F/S Step 3: Compile 2 F/S Step 4: Reconcile NI from VC to NI Absorption costing Example: DM $3/unit Year 1 Year 2 DL $2/unit Beg. FG Inv. 0 ? VOH $1 Production 10,000u 15,000u FOH $15,000/yr Sales 9,000u 9,000u FS $7,500/yr
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Unformatted text preview: SP $10 $10 Unit Costs: Absorption Variable DM 3 DM 3 DL 2 DL 2 OH 1 VOH 1 FOH 1.50 (15,000/10,000) 6 7.50 Beg. FG Inv. + COGM 10,000 GAFS 10,000- End. FG Inv. 9,000 COGS 1,000 Absorption Costing Income Statement: Sales (9,000 x $10) 90,000- COGS Beg. FG Inv. + COGM (10,000 x 7.50) 75,000 GAFS 75,000- End. FG Inv. (1,000 x 7.50) 7,500 COGS 67,500 Gross Profit 22,500- Op. Expenses VS&A 4,500 FS&A 7,500 12,000 Net Income 10,500 Variable Costing Income Statement: Sales (9,000 x $10) 90,000- Vexpenses VCOGS Beg. FG Inv. + COGM (10,000 x 6) 60,000 GAFS 60,000- End FG Inv. (1,000 x 6) 6,000 VCOGS 54,000 Subtotal 36,000- VS&A 4,500 Contr. Margin 31,500- Fexpenses FOH 15,000 FS&A 7,500 22,500 Net Income 9,000 Reconciliation: Variable Costing NI 9,000 + FOH in End. FG Inv. (1,000 x 1.50) 1,500 Subtotal 10,500- FOH in Beg. FG Inv. 0_____ Absorption Costing NI 10,500...
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This note was uploaded on 08/25/2010 for the course ACCT 208 taught by Professor Kingery during the Spring '08 term at University of Delaware.

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10014_032410_18 - SP $10 $10 Unit Costs: Absorption...

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