Overhead Application: Variable and Absorption Costing.

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Presentation transcript:

Overhead Application: Variable and Absorption Costing

15 - 2

 The differences between variable-costing and absorption-costing methods are based on the treatment of fixed manufacturing overhead

Variable costing excludes fixed manufacturing overhead from inventoriable costs. -Absorption costing treats fixed manufacturing overhead as inventoriable costs.

-The fixed-overhead rate is the amount of fixed manufacturing overhead applied to each unit of production. -It is determined by dividing the budgeted fixed overhead by the expected volume of production for the budget period.

 Under absorption costing, fixed overhead appears in the cost of goods sold.  Under variable costing, fixed overhead is a period cost

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