COMMERCE 2AB3 Chapter Notes - Chapter 8: Total Absorption Costing, Net Income, Variable Cost
7 Mar 2017
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Chapter 8: alternative inventory costing methods: a decision-making perspective. Absorption (full) costing: a costing approach in which all manufacturing costs are charged to the product. Variable costing: a costing approach in which only variable manufacturing costs are product costs. There is one primary difference between variable and absorption costing: under variable costing, the fixed manufacturing overhead is charged as an expense in the current period. When the number of units produced and sold is the same, net income is equal under the two costing approaches. As shown, when more units are produced (10) than sold (8), net income under absorption costing (,000) is higher than net income under variable costing (,000). Throughput costing: a costing approach in which only direct material costs are product costs. Direct labour and variable and fixed manufacturing costs are period costs (expenses). Throughput contribution: the difference between revenues and direct material costs for the units sold.
