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  • Manufacturing Costing Methods

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    Ahmed
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    The document compares three costing methods: variable costing, absorption costing, and throughput costing. Variable costing is not used for external reporting as it does not comply with GAAP, but it is used internally to identify cost savings. Absorption costing is the only method used for external reporting under GAAP, and it provides useful information for decision making and planning. Throughput costing also helps with capacity decisions and fast-paced production processes internally. The methods differ in their treatment of direct materials, direct labor, variable overhead, and fixed overhead as either inventory or period costs.

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    The document compares three costing methods: variable costing, absorption costing, and throughput costing. Variable costing is not used for external reporting as it does not comply with GAAP, but it is used internally to identify cost savings. Absorption costing is the only method used for external reporting under GAAP, and it provides useful information for decision making and planning. Throughput costing also helps with capacity decisions and fast-paced production processes internally. The methods differ in their treatment of direct materials, direct labor, variable overhead, and fixed overhead as either inventory or period costs.

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    21 views1 page

    Manufacturing Costing Methods

    Uploaded by

    Ahmed
    The document compares three costing methods: variable costing, absorption costing, and throughput costing. Variable costing is not used for external reporting as it does not comply with GAAP, but it is used internally to identify cost savings. Absorption costing is the only method used for external reporting under GAAP, and it provides useful information for decision making and planning. Throughput costing also helps with capacity decisions and fast-paced production processes internally. The methods differ in their treatment of direct materials, direct labor, variable overhead, and fixed overhead as either inventory or period costs.

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    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
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    Costing Methods

    Variable Costing Absorption Costing Throughput Costing

    Used for external reporting? No, it does not comply with GAAP (General Yes. The absorption costing method is the only one No, it does not comply with GAAP.
    Accepted Accounting Principles). of the three that is used in preparing financial
    statements for external reporting purposes in
    compliance with GAAP.
    Used for internal reporting? Yes, it shows where companies can save costs Yes, it shows company performance and provides Yes, it can help companies make capacity
    and increase their profitability. helpful data when making decisions and planning. decisions during the fast-paced production process.

    Which costs are considered inventory costs ■ Direct materials ■ Direct materials ■ Direct materials
    (production costs)? ■ Direct labor ■ Direct labor
    ■ Variable overhead (as it relates to the production ■ Variable overhead
    of the product ex. electricity) ■ Fixed overhead (periodic costs not related to
    production)
    Which costs are considered period costs? ■ Fixed overhead ■ All selling, general, and administrative expenses ■ Direct labor
    ■ All selling, general, and administrative expenses ■ Variable overhead
    ■ Fixed overhead
    ■ All selling, general, and administrative expenses

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