Você está na página 1de 34

CHAPTER 5

Variable Costing

Slide 5-2

Full (Absorption) Costing


Inventory costs include:
-direct materials used -direct labor incurred -both fixed & variable manufacturing overhead

Required by GAAP for external reporting purposes

Slide 5-3

Learning objective 1: Explain the difference between full (absorption) and variable costing

Which of the following complies with GAAP for external reporting purposes? a. Absolute costing b. Variable costing c. Fixed costing d. Full costing

Answer: d. Full costing


Slide 5-4

Learning objective 1: Explain the difference between full (absorption) and variable costing

Full (Absorption) Costing

Slide 5-5

Learning objective 1: Explain the difference between full (absorption) and variable costing

Variable Costing
Inventory costs includes: -Direct materials used -Direct labor incurred -Variable manufacturing overhead Fixed manufacturing overhead treated as a period cost Helpful for internal decision making Not allowed for GAAP reporting

Slide 5-6

Learning objective 1: Explain the difference between full (absorption) and variable costing

Variable Costing

Slide 5-7

Learning objective 1: Explain the difference between full (absorption) and variable costing

Difference Between Full and Variable Costing


Treatment of fixed manufacturing overhead
Under full costing, it is included in inventory and expensed when the product is sold Under variable costing, it is considered a period cost and expensed in the period incurred.

Slide 5-8

Learning objective 1: Explain the difference between full (absorption) and variable costing

Variable Costing Income Statement


Utilizes the contribution margin approach
- Contribution margin ratio = contribution margin/sales

Can help in decision making - Contribution margin ratio x change in sales =


change in contribution margin - Fixed costs stay the same when sales change

Slide 5-9

Learning objective 2: Prepare an income statement using variable costing.

Which of the following provides information helpful to internal decision making? a. Absolute costing b. Variable costing c. Fixed costing d. Full costing

Answer: b. Variable costing


Slide 5-10

Learning objective 2: Prepare an income statement using variable costing.

Sales are $100,000 and contribution margin is $65,000 Calculate the contribution margin ratio: $65,000 / $100,000 = 0.65 or 65% Calculate the change in contribution margin if sales change by $10,000 $10,000 X 0.65 = $6,500

Slide 5-11

Learning objective 2: Prepare an income statement using variable costing.

Variable Costing Income Statement Example

Slide 5-12

Learning objective 2: Prepare an income statement using variable costing.

Full Costing Income Statement Example

Slide 5-13

Learning objective 2: Prepare an income statement using variable costing.

Example - Clausen Tube


Selling price $2,000

Variable costs (per unit): -Materials = $600/unit -Labor = $225/unit -Variable mfg. overhead = $75/unit -Variable selling expense = $40/unit
Fixed mfg. overhead = $1,200,000 Production = 5,000 units

Slide 5-14

Learning objective 3: Discuss the effect of production on full and variable costing income.

Clausen Tube - Full Cost/Unit


Full cost/unit (5,000 units) is calculated as follows: $600/unit Total Material Costs Total labor costs Total variable OH
$225/unit $75/unit

Fixed Overhead
Full Cost/Unit

$1,200,000/ 5000 units

$240/unit
= $1,140/unit

Slide 5-15

Learning objective 3: Discuss the effect of production on full and variable costing income.

Clausen Tube Variable Cost/Unit


Variable unit cost is calculated as follows:
Unit materials cost = $600 Unit labor cost = $225 Unit variable overhead = $75 Variable cost per unit =
$600 + $225 + $75 = $900 per unit

Slide 5-16

Learning objective 3: Discuss the effect of production on full and variable costing income.

Clausen Tube Income Statement


Selling price = $2,000/unit Full cost = $1,140/unit Variable cost = $900/unit Variable selling expense = $40/unit Fixed overhead = $1,200,000 Fixed selling expense = $100,000 Fixed administrative expense= $500,000

Slide 5-17

Learning objective 3: Discuss the effect of production on full and variable costing income.

Clausen Tube Income Statements


Production equals sales (5,000 units)
Full Cost Sales 5,000 x $2,000 = 10,000,000 Cost of goods sold 5,000 x $1,140 = 5,700,000 Gross margin 4,300,000 Selling & Admin Expenses* 800,000 Net Income 3,500,000 *100,000 + 500,000 + (5,000 x $40) Variable Cost Sales 5,000 x $2,000 = 10,000,000 5,000 x $900 Variable costs +(5,000 x $40)= 4,700,000 Contribution margin 5,300,000 Fixed costs** 1,800,000 Net Income 3,500,000 **1,200,000 + 100,000 + 500,000

Slide 5-18

Learning objective 3: Discuss the effect of production on full and variable costing income.

Clausen Tube Income Statements


Production (5,000) is greater than sales (4,000)
Full Cost Sales 4,000 x $2,000 = 8,000,000 Cost of goods sold 4,000 x $1,140 = 4,560,000 Gross margin 3,440,000 Selling & Admin Expenses* 760,000 Net Income 2,680,000 *100,000 + 500,000 + (4,000 x $40) Variable Cost Sales 4,000 x $2,000 = 8,000,000 4,000 x $900 + Variable Costs (4,000 x $40) = 3,760,000 Contribution margin 4,240,000 Fixed Costs** 1,800,000 Net Income 2,440,000 **1,200,000 + 100,000 + 500,000

Slide 5-19

Learning objective 3: Discuss the effect of production on full and variable costing income.

Clausen Tube Income Statements


Production (5,000) less than sales (6,000)
Full Cost Sales 6,000 x $2,000 = 12,000,000 Cost of goods sold 6,000 x $1,140 = 6,840,000 Gross margin 5,160,000 Selling & Admin Expenses* 840,000 Net Income 4,320,000 *100,000 + 500,000 + (6,000 x 40) Variable Cost Sales 6,000 X 2,000 = 12,000,000 6,000 X 900 Variable costs +(6,000 x$40) = 5,640,000 Contribution margin 6,360,000 Fixed costs** 1,800,000 Net Income 4,560,000 **1,200,000 + 100,000 + 500,000
Slide 5-20

Learning objective 3: Discuss the effect of production on full and variable costing income.

Variable Costing for External Reporting

Slide 5-21

Learning objective 3: Discuss the effect of production on full and variable costing income.

Summit Manufacturing, Inc. produces snow shovels. The selling price is $25. Costs are:
Materials Labor Variable Overhead Fixed Overhead Variable Selling & Admin Fixed Selling & Admin 4 3 2 168,000 1 152,000

Production is 42,000 snow shovels. Calculate full cost/unit.


(4 x 42,000) + (3 x 42,000) + (2 x 42,000)+ 168,000) = 546,000 / 42,000 = $13/unit
Slide 5-22

Learning objective 3: Discuss the effect of production on full and variable costing income.

Summit Manufacturing, Inc. produces snow shovels. The selling price is $25. Costs are:
Materials Labor Variable Overhead Fixed Overhead Variable Selling & Admin Fixed Selling & Admin 4 3 2 168,000 1 152,000

Production is 42,000 snow shovels. Calculate variable cost/unit.


(4 + 3 + 2) = 9 per unit

Slide 5-23

Learning objective 3: Discuss the effect of production on full and variable costing income.

Summit Manufacturing, Inc. produces snow shovels. The selling price is $25. Costs are:
Full Cost Unit Cost Variable Unit Cost Fixed Overhead Variable Selling & Admin Fixed Selling & Admin 13 9 168,000 1 152,000

Sales are 38,500 snow shovels. Calculate net income using full cost.
Sales Cost of Goods Sold Selling & Admin Net Income 38,500 x $25 38,500 x $13 152,000 + 38,500 x $1 962,500 500,500 190,500 271,500

Slide 5-24

Learning objective 3: Discuss the effect of production on full and variable costing income.

Summit Manufacturing, Inc. produces snow shovels. The selling price is $25. Costs are:
Full Cost Unit Cost Variable Unit Cost Fixed Overhead Variable Selling & Admin Fixed Selling & Admin 13 9 168,000 1 152,000

Sales are 38,500 snow shovels. Calculate net income using variable cost.
Sales Variable Cost of Sales Variable Selling & Admin Fixed Overhead Fixed Selling and Admin Net Income 38,500 X 25 38,500 X 9 152,000 + 38,500 X 1 962,500 346,500 38,500 168,000 152,000 257,500

Slide 5-25

Learning objective 3: Discuss the effect of production on full and variable costing income.

Impact of Method Selection on Income Statement


Units produced = units sold
No difference in net income

Units produced greater than units sold


Full costing yields higher net income

Units Produced less than units sold


Variable costing yields higher net income

Slide 5-26

Learning objective 3: Discuss the effect of production on full and variable costing income.

If units produced exceed units sold:


a. Full costing yields a higher income than variable costing b. Full costing yields a lower income than variable costing c. Full costing and variable costing yield the same income d. Variable costing yields a higher income than full costing

Answer:
a. Full costing yields a higher income than variable costing
Slide 5-27

Learning objective 3: Discuss the effect of production on full and variable costing income.

If units produced are less than units sold:


a. Full costing yields a higher income than variable costing b. Full costing yields a lower income than variable costing c. Full costing and variable costing yield the same income d. Variable costing yields a lower income than full costing

Answer:
b. Full costing yields a lower income than variable costing
Slide 5-28

Learning objective 3: Discuss the effect of production on full and variable costing income.

Reducing Production

Slide 5-29

Learning objective 3: Discuss the effect of production on full and variable costing income.

Impact of JIT on Income


Companies using JIT typically have low levels of inventory Units produced are approximately equal to units sold Difference between full and variable costing is likely to be very small.

Slide 5-30

Learning objective 4: Explain the impact of JIT on the difference between full and variable costing income

Benefits of Variable Costing for Internal Reporting


Variable costing facilitates cost-volumeprofit (CVP) analysis -separates fixed and variable costs -easily calculate the change in income when sales change

Slide 5-31

Learning objective 5: Discuss the benefits of variable costing for internal reporting purposes

Benefits of Variable Costing for Internal Reporting


Variable costing limits management of earnings via production volume -Managers are often compensated based on income in their division -Full costing produces higher income when production is greater than sales -Managers have an incentive to manage earnings under full costing

Slide 5-32

Learning objective 5: Discuss the benefits of variable costing for internal reporting purposes

Impact of Changes in Sales

Slide 5-33

Learning objective 5: Discuss the benefits of variable costing for internal reporting purposes

Copyright
2010 John Wiley & Sons, Inc. All rights reserved. Reproduction or translation of this work beyond that permitted in Section 117 of the 1976 United States Copyright Act without the express written permission of the copyright owner is unlawful. Request for further information should be addressed to the Permissions Department, John Wiley & Sons, Inc. The purchaser may make back-up copies for his/her own use only and not for distribution or resale. The Publisher assumes no responsibility for errors, omissions, or damages, caused by the use of these programs or from the use of the information contained herein.
Slide 5-34