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    Variable Versus Absorption

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    Marianne Nicholls
    Variable costing and absorption costing are two different accounting methods for allocating manufacturing overhead costs. Under variable costing, only variable manufacturing costs are included in the cost of goods sold, while fixed manufacturing costs are expensed separately. Absorption costing allocates both variable and fixed manufacturing costs to inventory and cost of goods sold. The document provides data on production volumes, sales, revenues, variable manufacturing costs, fixed manufacturing costs, and administrative costs over three periods to illustrate the income statements under variable and absorption costing.

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    Variable Versus Absorption

    Uploaded by

    Marianne Nicholls
    14 views10 pages
    Variable costing and absorption costing are two different accounting methods for allocating manufacturing overhead costs. Under variable costing, only variable manufacturing costs are included in the cost of goods sold, while fixed manufacturing costs are expensed separately. Absorption costing allocates both variable and fixed manufacturing costs to inventory and cost of goods sold. The document provides data on production volumes, sales, revenues, variable manufacturing costs, fixed manufacturing costs, and administrative costs over three periods to illustrate the income statements under variable and absorption costing.

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    Variable costing and absorption costing are two different accounting methods for allocating manufacturing overhead costs. Under variable costing, only variable manufacturing costs are included in the cost of goods sold, while fixed manufacturing costs are expensed separately. Absorption costing allocates both variable and fixed manufacturing costs to inventory and cost of goods sold. The document provides data on production volumes, sales, revenues, variable manufacturing costs, fixed manufacturing costs, and administrative costs over three periods to illustrate the income statements under variable and absorption costing.

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
    Flag for inappropriate content
    Download as xlsx, pdf, or txt
    14 views10 pages

    Variable Versus Absorption

    Uploaded by

    Marianne Nicholls
    Variable costing and absorption costing are two different accounting methods for allocating manufacturing overhead costs. Under variable costing, only variable manufacturing costs are included in the cost of goods sold, while fixed manufacturing costs are expensed separately. Absorption costing allocates both variable and fixed manufacturing costs to inventory and cost of goods sold. The document provides data on production volumes, sales, revenues, variable manufacturing costs, fixed manufacturing costs, and administrative costs over three periods to illustrate the income statements under variable and absorption costing.

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
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    of 10

    VARIABLE COSTING VERSUS ABSORPTION COSTING

    Data: production and inventory Period 1

    Planned production (units) 25,000

    Finished product inventory (1 Jan) 0

    Actual production (units) 25,000

    Sales (units) 25,000

    Finished product inventory (31 Dec)

    Revenues and costs data

    Unit price 48

    Variable costs of manufacturing

    Direct materials 12

    Direct labor 8

    Other variable manufacturing 5


    Total variable unit costs of
    manufacturing
    DATA FOR ABSORPTION COSTING

    Fixed direct costs of manufacturing

    Yearly fixed costs of manufacturing 300,000

    Fixed manufacturing cost per unit

    Unit absorption cost

    Variable administrative and sales 4

    Yearly administrative and sales fixed 50,000

    Income statement - absorption costing

    Revenues

    Cost of goods sold

    Gross profit

    Administrative and sales fixed

    Variable adm & sales


    EBIT
    ION COSTING

    Period 2 Period 3

    25,000 25,000

    25,000 25,000

    17,500 32,500

    48 48

    12 12

    8 8

    5 5
    300,000 300,000

    4 4

    50,000 50,000
    VARIABLE VS. ABSORPTION

    Data: production and inventory Período 1

    Planned production (units) 25,000

    Finished product inventory (1 Jan) 0

    Actual production (units) 25,000

    Sales (units) 25,000


    Finished product inventory (31
    Dec)

    Revenues and costs data

    Unit price 48

    Variable costs of manufacturing

    Direct materials 12

    Direct labor 8

    Other variable manufacturing 5


    Total variable unit costs of
    manufacturing
    OTHER DATA

    Fixed manufacturing costs

    Yearlyfixed manufacturing costs 300,000

    Fixed manufacturing cost per unit

    Unit absorption cost

    Unit variable administrative and


    sales expense: vO 4

    Administrative and sales fixed costs 50,000

    Income statement - variable costing

    Revenues

    Total variable costs

    Margin of contribution

    Total fixed costs

    EBIT
    Período 2 Período 3

    25,000 25,000

    25,000 25,000

    17,500 32,500

    48 48

    12 12

    8 8

    5 5
    300,000 300,000

    4 4

    50,000 50,000

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