While widely used for financial reporting GAAP, this costing method can result in misleading product cost information for business decisions.. While widely used for financial report
Trang 1Financial and Managerial
Trang 2Chapter 19
Variable Costing and Performance Reporting
Trang 3Conceptual Learning
Objectives
C1: Describe how absorption costing
can result in over-production
C2: Explain the role of variable costing in
pricing special orders
Trang 4A1: Compute and interpret breakeven
volume in units
Analytical Learning Objectives
Trang 5P1: Compute unit cost under both
absorption and variable costing
P2: Prepare and analyze an income
statement using absorption costing
and using variable costing
P3: Prepare a contribution margin report
P4: Convert income under variable
costing to the absorption cost basis
Procedural Learning
Objectives
Trang 6Absorption costing (also called full
costing), assumes that products
absorb all costs incurred to
produce them.
While widely used for financial reporting (GAAP), this
costing method can result in misleading product cost information for business decisions.
costing), assumes that products
absorb all costs incurred to
produce them.
While widely used for financial reporting (GAAP), this
costing method can result in misleading product cost
information for business decisions.
Absorption Costing &
Variable Costing
C1
Trang 7Absorption Costing & Variable
Costing
Under variable costing, only
costs that change in total with
changes in production level
are included in product costs.
C2
Trang 8Distinguishing Between Absorption Costing
and Variable Costing: Absorption Costing
Absorption Costing
Direct Materials
Direct Labor
Variable Overhead
Fixed Overhead
Product Cost
P1
Trang 9Distinguishing Between Absorption
Costing and Variable Costing:
Variable Costing
Variable Costing
Direct Materials
Direct Labor
Variable Overhead
Fixed Overhead
Product Cost Period Cost
P1
Trang 10Difference Between Absorption Costing and Variable
Costing: Computing Unit Cost
P1
Trang 11Difference Between Absorption Costing and Variable
Costing: Computing Unit Cost
P1
Trang 12Analysis of Income Reporting for Both
Absorption and Variable Costing
P1
Trang 13Analysis of Income Reporting for Both
Absorption and Variable Costing: Units
Produced Equal Units Sold
A1
Trang 14Analysis of Income Reporting for Both
Absorption and Variable Costing: Units
Produced Exceed Units Sold
P2
Trang 15Analysis of Income Reporting for Both
Absorption and Variable Costing: Units
Produced Are Less Than Units Sold
P2
Trang 16Income Reporting Summarized
P2
Trang 17Planning Production
C1
Producing too much inventory
Excess inventory
Higher storage and financing
costs
Producing too little inventory
Lost sales
Customer dissatisfaction
Trang 18Setting Prices
Over the Long Run:
costs, including variable costs and fixed costs, and still provide an
acceptable return to owners
C2
Trang 19Setting Prices
Over the Short Run:
Fixed production costs such as the cost to maintain
plant capacity do not change with changes in production levels
With excess capacity, increases in production level
would increase variable production costs, but not fixed costs
While managers try to maintain the long-run price
on existing orders, which covers all production costs, managers should accept special orders
C2
Trang 20Limitations of Reports Using Variable Costing
•Absorption costing is the only acceptable
Trang 21End of Chapter 19