1. Variable Costing: A Tool for Management
Chapter5
Variable Costing: A Tool for Management

2. Overview of Absorption and Variable Costing

3. Penghitungan Biaya per Unit
Harvey Co. memproduksi satu produk jadi, berikut ini informasi :

4. Penghitungan Biaya per Unit
Unit product cost is determined as follows:
Selling and administrative expenses are always treated as period expenses and deducted from revenue.

5. Income Comparison of Absorption and Variable Costing
Harvey Co. had no beginning inventory, produced 25,000 units and sold 20,000 units this year.

6. Income Comparison of Absorption and Variable Costing
Harvey Co. had no beginning inventory, produced 25,000 units and sold 20,000 units this year.

7. Income Comparison of Absorption and Variable Costing
Now let’s look at variable costing by Harvey Co.
Variable costs only.
All fixed manufacturing overhead is expensed.

8. Income Comparison of Absorption and Variable Costing
Let’s compare the methods.

9. Income Comparison of Absorption and Variable Costing
Let’s compare the methods.

10. Reconciliation
We can reconcile the difference between absorption and variable income as follows:
Fixed mfg. overhead $150,000
Units produced ,000
= = $6.00 per unit

11. Extending the Example Let’s look at the second year of operations
for Harvey
Company.

12. Harvey Co. Year 2
In its second year of operations, Harvey Co. started with an inventory of 5,000 units, produced 25,000 units and sold 30,000 units.

13. Unit product cost is determined as follows:
Harvey Co. Year 2
Unit product cost is determined as follows:
No change in Harvey’s
cost structure.

14. Harvey Co. Year 2 Now let’s look at Harvey’s income statement
assuming absorption costing is used.

15. produced in the current period.
Harvey Co. Year 2
These are the 25,000 units
produced in the current period.

16. Next, we’ll look at Harvey’s income statement
Harvey Co. Year 2
Next, we’ll look at Harvey’s income statement
assuming is used.
Variable costing

17. All fixed manufacturing overhead is expensed.
Harvey Co. Year 2
Variable costs only.
All fixed manufacturing overhead is expensed.

18. Summary

19. Summary

20. Advantages of the Contribution Approach
Consistent with
CVP analysis.
Management finds it
easy to understand.
Net income is closer to net cash flow.
Consistent with standard costs and flexible budgeting.
Advantages
Easier to estimate profitability of products and segments.
Impact of fixed
costs on profits
emphasized.
Profit is not affected by changes in inventories.

21. End of Chapter 7

22. Variable versus Absorption Costing
Fixed costs are not really the costs of any particular product.
All manufacturing costs must be assigned to products to properly match revenues and costs.
Absorption Costing
Variable Costing

23. Variable versus Absorption Costing
These are capacity costs and will be incurred if nothing is produced.
Depreciation, taxes, insurance and salaries are just as essential to products as variable costs.
Absorption Costing
Variable Costing

24. Variable versus Absorption Costing
I guess we won’t be
solving this controversy
today!

25. Impact of JIT Inventory Methods
In a JIT inventory system . . .
Production tends to equal sales . . .
So, the difference between variable and
absorption income tends to disappear.