Absorption Costing vs Variable Costing

Question 1

Other Name

Answer 1

Absorption
- GAAP costing (COGS format)

Variable
- Marginal costing (CM format)

Question 2

Also explain why it is treated as such

Treatment of Fixed OH

Answer 2

Absorption
- product cost (inventoriable)

Variable
- period cost (fully expensed)

Question 3

Product Cost

Answer 3

Absorption - DM, DL, VFOH, FFOH

Variable - DM, DL, VFOH

Question 4

Period Cost

Answer 4

Absorption - S & A expenses

Variable - S & A expenses + FFOH

Question 5

Main Purpose

External or Internal

Answer 5

Absorption
- external reporting (financial statements)

Variable
- internal reporting (CVP analysis for management)

Question 6

Criticism

Answer 6

Absorption - income manipulation

Variable - violation of matching principle

Question 7

Which produces higher profit?

P SAVE B

Answer 7

Production | Sales
Absorption | Variable
Ending Inv | Beginning Inv

Question 8

Reconciliation

VAPE

Answer 8

Variable to Absorption
- Plus FFOH in Ending inventory (deferred)
- Deduct FFOH beginning inventory (released)

vice-versa for absorption → variable

Question 9

Throughput Costing

Super Variable Costing

Answer 9

Only DM is product cost

Question 10

Volume Variance

Only applicable in absorption costing

Answer 10

• (actual - normal) x unit FFOH
• Since mas malaki actual production, favorable
• Favorable = deducted in COGS