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Absorption Variable Costing
Absorption Variable Costing
Variable Costing
is statement of comprehensive income
Focus on
manufacturing
materials
¥ labor Iad
(also called conventional/traditional costing)
whether
on .
or
selling exp
operating cost
y 68 A
VARIABLE COSTING
→
Product
unsold =
inventory
asset to cost behavior
classified according
variable
(also called direct costing)
Period cost →
fixed or
operating cost
ABSORPTION VARIABLE
COSTING COSTING
AC
sales
ABSORPTION COSTING VARIABLE COSTING
material
E Labor of
sales
-
cos v04
you - part -
variable WS
GP ←
Selling Mfg margin
-
OE 69€ -
exp
V Sta
NF OM I
Fixed
selling
-
Fixed cost GI expense
↳ treated right away
as an expense
5. Net income Net income between the two methods may differ from each
other because of the difference in the amount of FFOH
recognized as expense during an accounting period. This
is due to variations between sales and production. In the
long run, however, both methods give the same results
since sales cannot continuously exceed production, nor
production can continuously exceed sales.
Production = Sales
When production is equal to sales, inventory is
•
zero. FOH expensed under AC = FOH expensed
Difference under VC. Therefore, AC income = VC income.
in
Production > Sales
Net Income When production is > sales, there is an increase in
inventory. FOH expensed under AC is < FOH Less than
NI >
expensed under VC. Therefore, AC income is > VC
LAC
income.
=
=
YC AU in VC
Income in is higher than
I s
=
PIE?¥Y given
"
""
=
*N
yin
"
+ 9 convert to in units
is
Kaya we
vo
Ya L
,
ve
TF FOH ly
*In the absence of normal capacity, use actual production. VC
✗
PC /U
/ units
That is , the company operated 100% of normal capacity. PCTU
ending
tender
inv ✓
ending inv in
peso end inv
COMPUTATION OF VOLUME VARIANCE
Beg Inu
Sales
b in
units
☐ / in units ✗ From
✗
FFOH 14
4 in net income
↳
difference
ACCOUNTING Production XX
FOR Less: Sales XX
DIFFERENCE Change in inventory XX
X FFOH cost per unit XX
Difference in Net Income XX
THANK YOU!
1st ANNOUNCEMENT
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