文档介绍:LECTURE 7
ABSORPTION AND VARIABLE STANDARD COSTING
In this lecture you will:
Learn the difference between the two systems
Be able to prepare pare e Statements under both AC and VC
Learn to prepare the contribution margin format (variable costing) e Statement
Explain (quantitatively and conceptually) the difference in profit in the two costing systems
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REVISION
IS under AC and VC
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AC Format
Sales
Less manufacturing costs (COGS)
GROSS PROFIT
Less selling, admin, financing PROFIT
VC Format:
Sales
Less Variable Costs (COGS, selling, admin)
Contribution Margin
Less Fixed Costs (manufacturing, selling, admin)
NET PROFIT
BACK
2. THE DIFFERENCE BETWEEN AC AND VC – FIXED OVERHEAD
In absorption costing systems:
All manufacturing costs are inventoriable costs
All non-manufacturing costs have been treated as period costs.
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DM, DL, V OH,FOH applied
WIP FG
then COGS
Non-manufacturing costs
Profit&Loss
2. THE DIFFERENCE BETWEEN AC AND VC – FIXED OVERHEAD
In variable costing systems:
Only variable manufacturing costs are treated as inventoriable costs.
Fixed manufacturing costs (Fixed OH) & non-manufacturing costs are treated as period costs.
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DM, DL, V OH
WIP FG
then COGS
F OH
WIP FG
then COGS
2. THE DIFFERENCE BETWEEN AC AND VC – FIXED OVERHEAD
Under variable costing
F OH
no longer exist, will not go into WIP, FG and COGS
Only variable OH will be applied to WIP
Its variances will no longer be entered into the accounts
Actual fixed OH is treated as a period cost
Comparison - amount of fixed OH expensed to the period under AC and VC
Exemple:
Assume the following data for a firm which budgeted for and actually produced 1,000 units in a period:
Standard F OH per unit of $2
Sold 3 units
Actual F OH incurred was $1,500
Under standardAC, the amount of fixed overhead being expensed to the period via COGS is:
$2 x 3 = $6
Under standard VC, the amount of fixed overhead expensed to the period (straight to P&L) is:
$1,500
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3.