Absorption Costing vs. Variable Costing
Absorption Costing Costingg1AbsorptionVariableSSCGSVCGPCMS& AFCNIABSNIVC2Overview of Absorptionand Variable CostinggVariableCostingAbsorptionCosting DMDLProductPdtDMDLDLVMOHCostsProductCost sDLVMOHVS&APeriodCtPeriodVS&AFMOHFS&ACos tsPeriodCostsFS&A3Unit Cost ComputationsHarvey Company produces a single productwith the following information available:g4Unit Cost ComputationsUnitproduct cost is determined as follows:pUnderabsorption Costing , S&A expenses arepg,palways treated asperiod expenses anddeducted from revenue as Comparison ofAbsorption and Variable CostingAbsorption and Variable CostingLet s assume the following additional information for Harvey Companyinformation for Harvey Company. 20,000 units were sold during the year at a price of $30 each$30 each. There were no units in beginning , let s compute net operating income usingNow, let s compute net operating income usingboth Absorption and Variable Costing7Variable CostingVariableftiVariable CostingSales (20,000 $30)600,000$Less Variable expenses:manufacturingcosts Variable expenses: Beginning inventory-$ Add COGM (25,000 $10)250,000Goods available for sale250 000All fixedmanufacturingGoods available for sale250,000 Less ending inventory (5,000 $10)50,000 Variable cost of goods sold200,000Vibl lli &diittigoverhead selling
Absorption Costing Absorption Costing Less cost of goods sold: Goods available for sale 480 000480,000 Less ending inventory - 480,000 Gross margin 420,000 Less selling & admin. exp. Fixed 100,000 190,000 Net operating income 230,000$ These are the 25,000 units produced in the current period. 13 Variable Costing Variable manufacturing costs only.
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