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1 C 7 - VARIABLE COSTING: A TOOL FOR MANAGEMENT notes-c7.doc Written by Professor Gregory M. Burbage, MBA, CPA, CMA, CFM © CHAPTER LEARNING OBJECTIVES: MAJOR: - Define and explain a Product cost under the variable costing definition. - Calculate total cost, per unit cost and ending inventory values under variable costing. - Memorize and use the Absorption-Variable Cost Reconciliation formula. MINOR: - Identify and calculate financial impacts when production increases or decreases, with all other possible variables remaining unchanged. ABSORPTION (FULL) COSTING uses the GAAP method of valuing inventories. GAAP requires all production costs to be included as a product cost. I.e., DM, DL, VFOH & FFOH. Therefore, if there is any ending inventory, it would include some DM, DL, VFOH and, of course, some FFOH (a pro-rata share). VARIABLE (DIRECT) COSTING on the other hand excludes FFOH from the definition (calculation) of a Product Cost. Variable costing treats FFOH as a Period Cost. Remember, all period costs are expensed, in full, in the period incurred.
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This note was uploaded on 01/13/2012 for the course ACCT 222 taught by Professor Staff during the Spring '11 term at Los Rios Colleges.

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