TOPIC FOCUS ON VARIABLE AND ABSORPTION COSTING. TF 3 WHAT IS VARIABLE COSTING? ► Product costing approach that includes only variable costs Direct materials.

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Presentation transcript:

TOPIC FOCUS ON VARIABLE AND ABSORPTION COSTING

TF 3 WHAT IS VARIABLE COSTING? ► Product costing approach that includes only variable costs Direct materials Direct labor Variable overhead ► Fixed overhead is not considered a product cost but is treated as a period cost and expensed as incurred

TF 3 COMPARISON

TF 3 JERSEY FABRIC PRODUCT COSTS Absorption CostingVariable Costing Direct Materials$1.26 Direct Labor 0.54 Variable Overhead 0.30 Fixed Overhead 1.50 Total cost per yard$3.60$2.10

TF 3 UNITS SOLD = UNITS PRODUCED Absorption CostingVariable Costing

TF 3 UNITS SOLD < UNITS PRODUCED Absorption CostingVariable Costing

TF 3 UNITS SOLD > UNITS PRODUCED Absorption CostingVariable Costing

TF 3 EFFECTS ON OPERATING INCOME

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