02 Variable and Absorption Costing Flashcards
Conventional income statement uses __________ costing.
Absorption Costing
Internal uses prefer __________ P/L.
Contribution Margin or Variable Costing
Inventories cost when incurred and will only be charged against revenue at point of sale.
Product Cost
System where only Raw Materials is considered as product cost and all other costs as period costs.
Throughput Costing / Super Variable Costing
System where all manufacturing and non-manufacturing costs that are value-adding are product costs.
Super Absorption Costing
Treated as an outright expense the moment it was incurred.
Period
Principle that supports period costs
Immediate recognition principle
Principle that supports product costs
Associating cause and effect principle
Other names of variable costing
Direct costing
Determine if the following is a product or period cost under each of the 4 costing systems.
a. DM
b. DL-Variable
c. FOH-V
d. FOH-F
e. S&A-V
f. S&A-F
Variable Costing
Product: A-C
Period: D-F
Absorption Costing
Product: A-D
Period: E-F
Throughput Costing
Product: A
Period: B-F
Super Absorption Costing
Product: A-F (provided it is value-adding)
For what decision making is each of the costing systems used?
Variable - internal
Absorption - external
Throughput - theory of constraints
Super Absorption - life cycle costing
Other names of absorption costing
Conventional costing or full costing
How does variable and absorption costing segregate costs?
Variable - according to behavior (fixed and variable)
Absorption - according to function
What are the revenue drivers of variable and absorption costing?
Variable - sales unit
Absorption
1. unit level of sales
2. unit level of production
3. chosen denominator level
Why is absorption costing not reliable for internal reports?
Managers can manipulate net income by producing more than what is being sold.
They can also prioritize products that absorb the highest amount of fixed cost.
