COMM-2016EL Study Guide - Midterm Guide: Income Statement, Earnings Before Interest And Taxes, Total Absorption Costing
28 Oct 2017
School
Department
Course
Professor
Document Summary
Variable costing is used mainly for internal reporting purposes as it is not accepted for external reporting purposes. Variable costing allows mangers to truly see what costs they can control and the contribution margins for each product. Fixed costs are considered period costs and expensed immediately. When preparing an income statement using the variable (contribution) approach only costs that are variable will impact the contribution margin. Note: variable production costs per unit are not the same as total variable costs per unit which includes variable selling and administrative expenses. Notice the total variable production costs are only ,000 whereas total variable costs are ,000. Assume the units sold were 100,000 this means the production costs for one unit is . 25 whereas the total variable costs per unit is . 30. Absorption costing is required for external reporting purposes however this method can easily be manipulated!
