Академический Документы
Профессиональный Документы
Культура Документы
Variable Costing
and the Costs of
Quality and
Sustainability
Copyright 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
Learning Objective 1
8-2
8-2
Absorption Costing
A system of accounting for costs in which both
fixed and variable production costs are
considered product costs.
Fixed
Costs
Product
Variable
Costs
8-3
Variable Costing
A system of cost accounting that only assigns
the variable cost of production to products.
Fixed
Costs
Product
Variable
Costs
8-4
Product costs
Variable
Costing
Direct materials
Direct labor
Variable mfg. overhead
Product costs
8-5
Product costs
Variable
Costing
Direct materials
Direct labor
Variable mfg. overhead
Product costs
Learning Objective 2
8-7
8-8
25,000
10
$ 150,000
$ 100,000
8-9
Absorption
Costing
Variable
Costing
10
10
6
16
10
8-10
Absorption Costing
Income Statements
Mellon Co. had no beginning inventory, produced 25,000
units, and sold 20,000 units this year at $30 each.
Absorption Costing
Sales (20,000 $30)
Less cost of goods sold:
Beginning inventory
Add COGM
Goods available for sale
Ending inventory
Gross margin
Less selling & admin. exp.
Variable
Fixed
Net income
$ 600,000
8-11
Absorption Costing
Income Statements
Mellon Co. had no beginning inventory, produced 25,000
units, and sold 20,000 units this year at $30 each.
Absorption Costing
Sales (20,000 $30)
Less cost of goods sold:
Beginning inventory
$
Add COGM (25,000 $16)
400,000
Goods available for sale
$ 400,000
Ending inventory (5,000 $16)
80,000
Gross margin
Less selling & admin. exp.
Variable
Fixed
Net income
$ 600,000
320,000
$ 280,000
8-12
Absorption Costing
Income Statements
Mellon Co. had no beginning inventory, produced 25,000
units, and sold 20,000 units this year at $30 each.
Absorption Costing
Sales (20,000 $30)
Less cost of goods sold:
Beginning inventory
$
Add COGM (25,000 $16)
400,000
Goods available for sale
$ 400,000
Ending inventory (5,000 $16)
80,000
Gross margin
Less selling & admin. exp.
Variable (20,000 $3)
$ 60,000
Fixed
100,000
Net income
$ 600,000
320,000
$ 280,000
160,000
$ 120,000
8-13
Learning Objective 3
8-14
Variable Costing
Income Statements
Now lets look at variable costing by Mellon Co.
Variable Costing
Sales (20,000 $30)
Less variable expenses:
Beginning inventory
$
Add COGM
Goods available for sale
Ending inventory
Variable cost of goods sold
Variable selling & administrative
expenses
Contribution margin
Less fixed expenses:
Manufacturing overhead
Selling & administrative expenses
Net income
$ 600,000
-
8-15
Variable Costing
Income Statements
We exclude the
Variable
Costing
fixed
manufacturing
$ 600,000
overhead.
8-16
Variable Costing
Income Statements
Now lets look at variable costing by Mellon Co.
Variable Costing
Sales (20,000 $30)
Less variable expenses:
Beginning inventory
Add COGM (25,000 $10)
Goods available for sale
Ending inventory (5,000 $10)
Variable cost of goods sold
Variable selling & administrative
expenses (20,000 $3)
Contribution margin
Less fixed expenses:
Manufacturing overhead
Selling & administrative expenses
Net income
$ 600,000
$
250,000
$ 250,000
50,000
$ 200,000
60,000
$ 150,000
100,000
260,000
$ 340,000
250,000
$ 90,000
8-17
Ending
Inventory
Period
Expense
Total
Absorption costing
Variable mfg. costs $ 200,000
Fixed mfg. costs
120,000
$ 320,000
Variable costing
Variable mfg. costs $ 200,000
Fixed mfg. costs
$ 200,000
8-18
Ending
Inventory
Period
Expense
Absorption costing
Variable mfg. costs $ 200,000
Fixed mfg. costs
120,000
$ 320,000
$ 50,000
30,000
$ 80,000
Variable costing
Variable mfg. costs $ 200,000
Fixed mfg. costs
$ 200,000
$ 50,000
$ 50,000
Total
150,000
$ 150,000
8-19
Ending
Inventory
Period
Expense
Absorption costing
Variable mfg. costs $ 200,000
Fixed mfg. costs
120,000
$ 320,000
$ 50,000
30,000
$ 80,000
Variable costing
Variable mfg. costs $ 200,000
Fixed mfg. costs
$ 200,000
$ 50,000
$ 50,000
150,000
$ 150,000
Total
$ 250,000
150,000
$ 400,000
$ 250,000
150,000
$ 400,000
8-20
Learning Objective 4
8-21
90,000
30,000
120,000
Learning Objective 5
8-23
Cost-Volume-Profit Analysis
CVP includes all fixed costs to compute
breakeven.
Variable costing and CVP are consistent as both
inventory.
Absorption costing is inconsistent with CVP
8-24
Learning Objective 6
8-25
Lets look at
the second
year of
operations
for Mellon
Company.
8-26
25,000
10
$ 150,000
$ 100,000
8-27
Absorption
Costing
Variable
Costing
10
10
6
16
10
8-28
8-29
$ 900,000
$ 80,000
400,000
$ 480,000
-
$ 90,000
100,000
480,000
$ 420,000
190,000
$ 230,000
8-30
$ 900,000
$ 80,000
400,000
$ 480,000
-
$ 90,000
100,000
480,000
$ 420,000
190,000
$ 230,000
8-32
$ 900,000
$
50,000
250,000
$ 300,000
$ 300,000
90,000
$ 150,000
100,000
390,000
$ 510,000
250,000
$ 260,000
Summary
Income Comparison
Costing Method
Absorption
Variable
1st Period
$ 120,000
90,000
2nd Period
$ 230,000
260,000
Total
$ 350,000
350,000
Summary
Income Comparison
Costing Method
Absorption
Variable
1st Period
$ 120,000
90,000
2nd Period
$ 230,000
260,000
Total
$ 350,000
350,000
8-35
Summary
Lets see if we can get an overview of
what we have done.
8-36
Summary Comparison of
Absorption (AC) and Variable
Costing (VC)
8-37
Summary Comparison of
Absorption (AC) and Variable
Costing (VC)
Summary Comparison of
Absorption (AC) and Variable
Costing (VC)
8-39
Summary Comparison of
Absorption (AC) and Variable
Costing (VC)
Total
Production versus
Sales
Inventory
Effect
Increase
Fixed mfg.
< costs expensed
VC
Profit Effect
AC > VC
No change
Fixed mfg.
Fixed mfg.
costs expensed = costs expensed
AC
VC
VC
AC = VC
8-40
Advantages
Impact of fixed
costs on profits
emphasized.
Consistent with
CVP analysis.
Emphasizes contribution in
short-run pricing decisions.
Advantages
External reporting
and income tax law
require absorption costing.
8-42
Production tends
to equal sales . . .
Learning Objective 7
8-44
Grade
Quality
8-45
Learning Objective 8
8-47
8-47
8-48
8-49
Learning Objective 9
8-50
Costs of Environmental
Sustainability
Sustainable development includes business
8-52
End of Chapter 8
TheEnd
8-54