COMMERCE 2AB3 Lecture Notes - Lecture 2: Earnings Before Interest And Taxes, Direct Labor Cost, Total Absorption Costing

• School: McMaster University
• Department: Commerce
• Course: COMMERCE 2AB3
• Professor: Mohamed M Shehata

Document Summary

Inventory product costing methods: (absorption vs. variables costing systems or methods) There are many methods available for computing the cost of production, where each method serves different purpose. In this course we will cover only the following two methods: : absorption ( or full) costing method: for the purpose of reporting to external users, variable (or contribution) costing method: for the purpose of reporting to internal. * please note that the textbook covers in the appendix of chapter 8 two more methods (throughput and normal costing methods). We will not cover them and you will not be tested on them. In chapter 2, we learned that the manufacturing costs include three major elements (i. e. , dm, dl, and foh). While absorption costing method requires that all production costs (dm, dl and foh) should be assigned to the units produced, the variable costing methods requires that only variable production costs should be assigned to the units produced.