Super-Variable Costing Appendix 6A

Learning Objective 6 Prepare an income statement using super-variable costing and reconcile this approach with variable costing.

Overview of Variable and Super-Variable Costing Super-variable costing classifies all direct labor and manufacturing overhead costs as fixed period costs and only direct materials as a variable product cost. To simplify, in this appendix we also assume that selling and administrative expenses are entirely fixed. Super- Variable Costing Variable Costing Product Costs Period Costs Direct Materials Direct Labor Fixed Manufacturing Overhead Fixed Selling and Administrative Expenses Product Cost Period Costs

Unit Cost Computations – Part 1 Harvey Company produces a single product with the following information available:

Unit Cost Computations – Part 2 Unit product cost is determined as follows:   Under super-variable costing, only the direct material costs are included in product costs. Under variable costing, direct materials and direct labor are included when determining unit product cost.

Variable and Super-Variable Costing Income Statements Let’s assume the following additional information for Harvey Company. 20,000 units were sold during the year at a price of $30 each. There is no beginning inventory. Now, let’s compute net operating income using both super-variable and variable costing.  

Super-Variable Costing Contribution Format Income Statement All direct labor costs are expensed. Direct material costs only.

Variable Costing Contribution Format Income Statement Direct material and direct labor costs. Direct labor cost deferred in inventory is 5,000 units × $3 = $15,000.

Comparing the Two Methods – Part 1

Comparing the Two Methods – Part 2 We can reconcile the difference between super-variable and variable income as follows: Direct labor $75,000 Units produced 25,000 units = = $3 per unit

Extended Comparisons of Income Data Harvey Company – Year Two

Unit Cost Computations – Year Two Since the variable costs per unit, total fixed costs, and the number of units produced remained unchanged, the unit cost computations also remain unchanged.

Super-variable Costing Contribution Format Income Statement – Year Two All direct labor costs are expensed. Direct material costs only.  

Variable Costing Contribution Format Income Statement – Year Two Direct material and direct labor costs. Direct labor cost released from inventory is 5,000 units × $3 = $15,000.

Comparing the Two Methods – Year Two – Part 1 We can reconcile the difference between super-variable and variable income as follows: Direct labor $75,000 Units produced 25,000 units = = $3 per unit

Comparing the Two Methods – Year Two – Part 2

End of Chapter 6A