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Lecture Managerial accounting: Creating value in a dynamic business environment (10/e): Chapter 8 - Ronald W. Hilton, David E. Platt

Chapter 8, variable costing and the costs of quality and sustainability. After completing this chapter, you should be able to: Explain the accounting treatment of fixed manufacturing overhead under absorption and variable costing, prepare an income statement under absorption costing, prepare an income statement under variable costing,. | Variable Costing and the Costs of Quality and Sustainability Chapter 8 Copyright © 2014 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Chapter 8: Absorption and Variable Costing. Absorption and Variable Costing 8- Since the costs of production are stored in inventory accounts until the goods are sold under absorption costing, these costs are said to be inventoried, or inventoriable costs. When using variable costing, only variable costs are inventoried. When using absorption costing, both variable and fixed costs are inventoried. (LO1) Absorption and Variable Costing The difference between absorption and variable costing is the treatment of fixed manufacturing overhead. 8- Eventually, fixed overhead is expensed under both product-costing systems. Under variable costing, however, fixed overhead is expensed immediately, as it is incurred. Under absorption costing, fixed overhead is . | Variable Costing and the Costs of Quality and Sustainability Chapter 8 Copyright © 2014 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Chapter 8: Absorption and Variable Costing. Absorption and Variable Costing 8- Since the costs of production are stored in inventory accounts until the goods are sold under absorption costing, these costs are said to be inventoried, or inventoriable costs. When using variable costing, only variable costs are inventoried. When using absorption costing, both variable and fixed costs are inventoried. (LO1) Absorption and Variable Costing The difference between absorption and variable costing is the treatment of fixed manufacturing overhead. 8- Eventually, fixed overhead is expensed under both product-costing systems. Under variable costing, however, fixed overhead is expensed immediately, as it is incurred. Under absorption costing, fixed overhead is inventoried until the accounting period during which the manufactured goods are sold. (LO1) Absorption and Variable Costing Mellon Co. produces a single product with the following information available: 8- We will assume that Mellon company produces a single product. Mellon’s cost accountant has prepared the schedule shown on the slide. (LO2) Absorption and Variable Costing Unit product cost is determined as follows: Selling and administrative expenses are always treated as period expenses and deducted from revenue. 8- Unit product costs are different because absorption costing applies fixed manufacturing costs to the product and variable costing does not. (LO2) Absorption Costing Income Statements Mellon Co. had no beginning inventory, produced 25,000 units, and sold 20,000 units this year at $30 each. 8- We assume that Mellon has no beginning inventory, produced 25,000 units, but sold only 20,000 units. (LO2) Absorption Costing Income Statements Mellon Co. had no beginning .