Week 8 - Absorption and Variable Costing II Flashcards
How do we get the unit cost for variable costing?
Add together the cost of direct materials, direct labour and variable manufacturing overhead
How do we get the unit cost for absorption costing?
Add together the cost of direct materials, direct labour, variable manufacturing overhead AND the fixed manufacturing overhead divided by the no. of units produced
In absorption costing, how do we get to ‘goods available for sale’?
Sales less cost of goods sold (beginning inventory and cost of goods manufactured)
In absorption costing, how do we get to ‘gross margin’?
Sales - ending inventory
In absorption costing, how do we get to net income?
Gross margin less selling and admin expenses (variable and fixed)
In variable costing, how do we get to ‘goods available for sale’?
Sales less beginning inventory and cost of goods manufactured
In variable costing, how do we get to ‘variable cost of goods sold’?
Goods available for sales - ending inventory
In variable costing, how do we get to the ‘contribution margin’?
Sales - (goods available for sale + variable cost of goods sold + variable selling and admin expenses)
In variable costing, how do we get to net income?
Contribution margin less manufacturing overhead and fixed selling and administrative expenses
What is the order for variable costing?
Sales
Goods available for sale
Variable cost of goods sold
Contribution margin
Net income
What is the order for absorption costing?
Sales
Goods available for sale
Gross margin
Net income
What is the difference between absorption and variable costing in regards to fixed manufacturing overhead?
In variable costing, all fixed manufacturing overhead will be charged on the statement of profit and loss. In absorption, only part of it will be - the rest will go on the statement of financial position
