Question

In: Accounting

explain the difference between absorption costing and variable costing methods. How does each treat fixed manufacturing...

explain the difference between absorption costing and variable costing methods. How does each treat fixed manufacturing overhead? Provide an example and calculate the unit product cost using each method.

Solutions

Expert Solution

  • Difference between absorption costing and variable costing

Variable Costing:

Product Cost under Variable costing includes direct material cost, direct labor cost, and variable manufacturing overhead only.

Fixed manufacturing overhead do not form part of the Product cost.

Absorption Costing:

Product Cost under Absorption costing includes direct material cost, direct labor cost, variable manufacturing overhead AND fixed manufacturing overheads.

>Selling, General and administrative expenses (BOTH Variable and Fixed) DO NOT FORM part of product cost.

Product Cost

Absorption Costing

Variable Costing

Direct material

Direct material

Direct Labor

Direct Labor

Variable manufacturing overhead

Variable manufacturing overhead

Fixed manufacturing overhead applied

-

  • Example

Units produced = 1000 units

Product Cost

Absorption Costing

Variable Costing

Direct Material

$53.00

$53.00

Direct Labor

$46.00

$50.00

Variable manufacturing overhead

$4.00

$11.00

Fixed manufacturing overhead

$24.00 [$24,000 / 1000 units]

$0.00

Total product cost

$127.00

$114.00

ekkarill92 answered 2 years ago
Next > < Previous

Related Solutions

Explain the difference between absorption costing and variable costing methods. How does each treat fixed manufacturing...
Explain the difference between absorption costing and variable costing methods. How does each treat fixed manufacturing overhead? Provide an example and calculate the unit product cost using each method.
Absorption Statement Absorption costing does not distinguish between variable and fixed costs. All manufacturing costs are...
Absorption Statement Absorption costing does not distinguish between variable and fixed costs. All manufacturing costs are included in the cost of goods sold. Saxon, Inc. Absorption Costing Income Statement For the Year Ended December 31 Sales $1,200,000 Cost of goods sold:   Cost of goods manufactured $800,000   Ending inventory (200,000)     Total cost of goods sold (600,000) Gross profit $600,000 Selling and administrative expenses (290,000) Operating income $310,000 Variable Statement Under variable costing, the cost of goods manufactured includes only variable manufacturing...
Absorption Statement Absorption costing does not distinguish between variable and fixed costs. All manufacturing costs are...
Absorption Statement Absorption costing does not distinguish between variable and fixed costs. All manufacturing costs are included in the cost of goods sold. Saxon, Inc. Absorption Costing Income Statement For the Year Ended December 31 Sales $1,200,000 Cost of goods sold:   Cost of goods manufactured $800,000   Ending inventory (200,000)     Total cost of goods sold (600,000) Gross profit $600,000 Selling and administrative expenses (290,000) Operating income $310,000 Variable Statement Under variable costing, the cost of goods manufactured includes only variable manufacturing...
Absorption costing does not distinguish between variable and fixed costs. All manufacturing costs are included in...
Absorption costing does not distinguish between variable and fixed costs. All manufacturing costs are included in the cost of goods sold. Saxon, Inc. Absorption Costing Income Statement For the Year Ended December 31 1 Sales $1,200,000.00 2 Cost of goods sold: 3 Beginning inventory $0.00 4 Cost of goods manufactured 800,000.00 5 Ending inventory (160,000.00) 6 Total cost of goods sold 640,000.00 7 Gross profit $560,000.00 8 Selling and administrative expenses 289,000.00 9 Income from operations $271,000.00 Under variable costing,...
Absorption costing does not distinguish between variable and fixed costs. All manufacturing costs are included in...
Absorption costing does not distinguish between variable and fixed costs. All manufacturing costs are included in the cost of goods sold. Saxon, Inc. Absorption Costing Income Statement For the Year Ended December 31 1 Sales $1,125,000.00 2 Cost of goods sold: 3 Beginning inventory $0.00 4 Cost of goods manufactured 840,000.00 5 Ending inventory (210,000.00) 6 Total cost of goods sold 630,000.00 7 Gross profit $495,000.00 8 Selling and administrative expenses 275,000.00 9 Income from operations $220,000.00 Variable Statement Under...
difference between absorption costing and variable costing
What is the difference between absorption costing and variable costing, and how can the choice between these two methods impact a company's reported profits and financial performance?
Explain the difference between variable costing and absorption costing. Describe the limitations of using variable costing....
Explain the difference between variable costing and absorption costing. Describe the limitations of using variable costing. Describe the limitations of using absorption costing. What difference do you notice on the income statement when prepared with absorption costing versus variable costing? "Managerial Accounting"
Absorption costing does not distinguish between variable and fixed costs. All manufacturing costs are included in the cost of goods sold.
Absorption StatementAbsorption costing does not distinguish between variable and fixed costs. All manufacturing costs are included in the cost of goods sold.Saxon, Inc.Absorption Costing Income StatementFor the Year Ended December 31Sales$1,275,000Cost of goods sold:  Cost of goods manufactured$800,000  Ending inventory(120,000)    Total cost of goods sold(680,000)Gross profit$595,000Selling and administrative expenses(286,000)Operating income$309,000Variable StatementUnder variable costing, the cost of goods manufactured includes only variable manufacturing costs. This type of income statement includes a computation of manufacturing margin.Saxon, Inc.Variable Costing Income StatementFor the Year Ended December 31Sales$1,275,000Variable...
Explain the difference between absorption costing and variable costing and which you think is more useful.
Explain the difference between absorption costing and variable costing and which you think is more useful.
You have been asked to explain the difference between NOI for absorption costing and variable costing...
You have been asked to explain the difference between NOI for absorption costing and variable costing for Duncan Inc. You have the following information regarding the performance for the year: Absorption Variable Sales $       1,260,000 Sales     1,260,000 Cost of goods sold              810,000 Variable cost of goods sold        720,000 Gross margin              450,000 Variable selling and administrative expenses        120,000 Selling and administrative expenses              195,000 Contribution margin        420,000 NOI $          255,000 Fixed manufacturing overhead        120,000...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT