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Variable Costing
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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
Learning objective 1: Explain the difference between full (absorption) and variable costing
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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
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Learning objective 1: Explain the difference between full (absorption) and variable costing
Variable Costing
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Learning objective 1: Explain the difference between full (absorption) and variable costing
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Learning objective 1: Explain the difference between full (absorption) and variable costing
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Which of the following provides information helpful to internal decision making? a. Absolute costing b. Variable costing c. Fixed costing d. Full 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
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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
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Learning objective 3: Discuss the effect of production on full and variable costing income.
Fixed Overhead
Full Cost/Unit
$240/unit
= $1,140/unit
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Learning objective 3: Discuss the effect of production on full and variable costing income.
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Learning objective 3: Discuss the effect of production on full and variable costing income.
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Learning objective 3: Discuss the effect of production on full and variable costing income.
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Learning objective 3: Discuss the effect of production on full and variable costing income.
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Learning objective 3: Discuss the effect of production on full and variable costing income.
Learning objective 3: Discuss the effect of production on full and variable costing income.
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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
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
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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
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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
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Learning objective 3: Discuss the effect of production on full and variable costing income.
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Learning objective 3: Discuss the effect of production on full and variable costing income.
Answer:
a. Full costing yields a higher income than variable costing
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Learning objective 3: Discuss the effect of production on full and variable costing income.
Answer:
b. Full costing yields a lower income than variable costing
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Learning objective 3: Discuss the effect of production on full and variable costing income.
Reducing Production
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Learning objective 3: Discuss the effect of production on full and variable costing income.
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Learning objective 4: Explain the impact of JIT on the difference between full and variable costing income
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Learning objective 5: Discuss the benefits of variable costing for internal reporting purposes
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Learning objective 5: Discuss the benefits of variable costing for internal reporting purposes
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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.
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