COMM 305 Chapter Notes - Chapter 8: Total Absorption Costing, Net Income, Fixed Cost
7 Apr 2017
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Earlier, we classified both variable and fixed costs as product costs. In job-order costing, for example, a job is assigned the costs of direct materials, direct labor and both variable and fixed overhead. This costing approach is known as full or absorption costing because all manufacturing costs are charged to, or absorbed by, the product. Absorption costing is the approach used for external reporting under generally accepted accounting principles. An alternative is to use variable costing under variable costing; only direct materials, direct labor and variable overhead costs are considered product costs. Fixed overhead costs are recognized as period costs (expenses) when incurred. Selling & administrative expenses are period costs under both absorption and variable costing. To illustrate absorption & variable costing, assume that premium product corporation manufactures a sealant called fix-it for car windshields. Relevant data for fix-it in january 2012, the first month of production, are shown below: Variable unit costs: manufacturing (direct materials , direct.
