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Variable Costing-A Tool For Management
Variable Costing-A Tool For Management
Variable
Costing
Overview of Absorption and Variable
Costing
Absorption
Costing
Overview of Absorption and Variable
Costing
Variable
Costing
Overview of Absorption and Variable
Costing
Who’s right?
How should we treat the car
payment and the insurance?
Overview of Absorption and Variable
Costing
Absorption Variable
Costing Costing
Direct materials
Direct labour Product costs
Product costs Variable mfg. overhead
No change in Harvey’s
cost structure.
Harvey Co. Year 2
Absorption Costing
Sales (30,000 × $30) $ 900,000
Less cost of goods sold:
Beg. inventory (5,000 × $16) $ 80,000
Add COGM (25,000 × $16) 400,000
Goods available for sale 480,000
Ending inventory - 480,000
Gross margin 420,000
Less selling & admin. exp.
Variable (30,000 × $3) $ 90,000
Fixed 100,000 190,000
Net income $ 230,000
All fixed
manufacturing
overhead is
expensed.
Summary
Summary
Advantages of the Contribution
Approach
Consistent with
CVP analysis.
Management finds it Net income is closer
easy to understand. to net cash flow.
Absorption Variable
Costing Costing
Variable versus Absorption Costing
Absorption Variable
Costing Costing
Variable versus Absorption Costing
I guess we won’t be
solving this controversy
today!
Impact of JIT Inventory Methods
Production
tends to equal
sales . . .