ACCT 2230 Lecture Notes - Lecture 6: Total Absorption Costing, Fixed Cost, Variable Cost

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sangriaeel172

27 Dec 2015

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Absorption: treating all manufacturing costs as product costs regardless variable or xed i. e. : cost of a unit of product includes direct materials, direct labour & both variable & Variable: only manufacturing costs that vary with output are product. Absorption costing costs ie: direct materials, direct labour & variable manufacturing overhead. Fixed overhead is considered a period cost. also called: direct or marginal. Selling & administrative is a product cost in both methods! Effect of changes in production on op income. Op income changes with production. ie: production down- operating income down. Fixed manufacturing overhead cost deferred in inventory: xed costs associated with inventory are carried forward as an account inventory not period cost (under. External reporting/income taxes/management evaluation: absorption costing is predominant in canada (required in states, a manager might use vc for internal reports and ac for external income tax: both vc and ac are permitted.

Related Questions

EXERCISE 6-6 Variable and Absorption Costing Unit Product Costs and Income Statements [L06-1, L06-2] Lynch Company manufactures and sells a single product. The following costs were incurred during the company's first year of operations: Variable costs per unit: Manufacturing: Direct materials ............. Direct labor .............................. Variable manufacturing overhead .... Variable selling and administrative .......... Fixed costs per year: Fixed manufacturing overhead .......... Fixed selling and administrative ............. $300,000 $190,000 During the year, the company produced 25,000 units and sold 20,000 units. The selling price of the company's product is $50 per unit. Required: 1. Assume that the company uses absorption costing: a. Compute the unit product cost. b. Prepare an income statement for the year. 2. Assume that the company uses variable costing: a. Compute the unit product cost. b. Prepare an income statement for the year.

The Dorset Corporation produces and sells a single product. The following data refer to the year just completed:


Beginning inventory		0
Units produced		34,000
Units sold		25,900
Selling price per unit	$	482
Selling and administrative expenses:
Variable per unit	$	16
Fixed per year	$	362,600
Manufacturing costs:
Direct materials cost per unit	$	240
Direct labor cost per unit	$	56
Variable manufacturing overhead cost per unit	$	34
Fixed manufacturing overhead per year	$	578,000

Assume that direct labor is a variable cost.

Required:

a. Compute the unit product cost under both the absorption costing and variable costing approaches.

b. Prepare an income statement for the year using absorption costing.

c. Prepare an income statement for the year using variable costing.

d. Reconcile the absorption costing and variable costing net operating income figures in (b) and (c) above.

viridianworm389

Sproull Inc., which produces a single product, has provided thefollowing data for its most recent month of operation: Number ofunits produced 7,700 Variable costs per unit: Direct materials $157 Direct labor $ 81 Variable manufacturing overhead $ 3 Variableselling and administrative expenses $ 9 Fixed costs: Fixedmanufacturing overhead $ 415,800 Fixed selling and administrativeexpenses $ 146,300 The company had no beginning or endinginventories.

Required:

a.	Compute the unit product cost under absorption costing

b.	Compute the unit product cost under variable costing.

rosejackal249

ACCT 2230 Lecture Notes - Lecture 6: Total Absorption Costing, Fixed Cost, Variable Cost

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