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 agoRelated 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...
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