Chapter 6: Absorption and Variable Costing Flashcards
Refresher: products costs are expensed when?
expensed when sold; other cost are in inventories
Refresher:period costs are expensed when?
expensed as inccured (as they happen)
Absorption Costing
treats all costs of production as products.
-cost of a unit of product under the absorption costing method consists of direct materials, direct labor, and both variable and fixed MOH
AC: is FMOH allocated?
it is allocated to each unit of product
AC:What are period cost in reference to an alternate name?
selling and administrative expenses(both fixed and variable)
AC: If product is sold and if not sold?
the FOH, as well As DM,DL, and VOH is expensed; if product is not sold then FOH as well as DM,Dl, & VOH is in inventory
AC: only method acceptable for tax reporting and audited external reports)
GAAP
Define Variable Costing
only those cots of production that vary directly with volume are treated as product costs
VC: Product Costs Consist of?
DM,DL, and variable MOH
VC: When are the product costs expensed ?
when sold otherwise they are cost in ending inventory
AC vs. VC: Fixed Manufacturing Overhead is not
treated as a product cost under variable costing. Rather it is treated as a period cost and deducted in full each year from revenues
AC vs. VC: What is there never in inventories for variable costing?
never any FOH
Period cost consist of
FOH and S&A
What is variable costing used for?(like internally in the company)
may be used by companies internally for planning and for controlling operations
What is variable costing not acceptable for?
tax reporting and audited external reports
What does variable costing approximate?
more closely approximates cash flows
What are selling costs considered in both methods?
-they are always period costs
Do the variable costing deferred and released terms?
…..
What can FOH be each period?
different depending on levels of production
Comparing Variable NI to Variable NI
the higher the sales the higher the net income, thus if sales are the same then NI is same
Absorption NI to Absorption NI
more produced the less per unit, thus if sales are same you will have different NI if production levels change
COGS/COGM formula
Beginning FG Inventory \+COGM ---------------------------------------- GAFS -Ending FG Inventory ------------------------------------------- COGS
How to get FMOH per unit?
FMOH/ units produced
Units Produced=Units Sold
- no change in inventories
- absorption costing net operating income=variable costing net operating income
Units Produced> Units Sold
- inventories increase
- absorption costing net operating income> variable costing net operating income
Units Produced< Units Sold
Absorption costing net operating income< Variable Costing Net Operating Income
Absorption costing expenses only the FOH….
on units SOLD
Variable costing expenses all FOH….
for the period regardless of sales
