ACCT 2230 Chapter : Managerial Accounting Chapter Eight Notes

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Chapter eight- variable costing: a tool for management y overview of absorption and variable cost: absorption costing. absorption costing treats all manufacturing costs as product costs, regardless of whether they are variable or fixed. the cost of a unit of product under the absorption costing method therefore consists of direct materials, direct labour, and both variable and fixed overhead. Thus, absorption costing allocates a portion of fixed manufacturing overhead cost to each unit of product, along with the variable manufacturing costs. because absorption costing includes all manufacturing costs as product costs, it is frequently referred to as the full cost method: variable costing. variable costing, only those manufacturing costs that vary with output are treated as product costs. This would generally include direct materials, direct labour, and the variable portion of manufacturing overhead. fixed manufacturing overhead is not treated as a product cost under this method.

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