Chapter 5 - Variable costing. This chapter presents the following content: Full (absorption) costing, variable costing, difference between full and variable costing, variable costing income statement, variable costing vs. full costing income statement, effects of production on income,. | Prepared by Debby Bloom-Hill CMA, CFM 1 CHAPTER 5 Variable Costing 2 Slide 5-3 Full (Absorption) Costing Required by GAAP for external reporting purposes Inventory costs include: Direct materials used Generally variable Direct labor incurred Generally variable Manufacturing overhead Includes both fixed and variable costs Learning objective 1: Explain the difference between full (absorption) and variable costing, and prepare an income statement using variable costing. 3 Slide 5-4 Variable Costing Inventory costs includes: Direct materials used Direct labor incurred Variable manufacturing overhead Fixed manufacturing overhead treated as a period cost Helpful for internal decision making Not allowed for GAAP reporting Learning objective 1: Explain the difference between full (absorption) and variable costing, and prepare an income statement using variable costing. 4 Slide 5-5 Which of the following complies with GAAP for external reporting purposes? Absolute costing Variable costing . | Prepared by Debby Bloom-Hill CMA, CFM 1 CHAPTER 5 Variable Costing 2 Slide 5-3 Full (Absorption) Costing Required by GAAP for external reporting purposes Inventory costs include: Direct materials used Generally variable Direct labor incurred Generally variable Manufacturing overhead Includes both fixed and variable costs Learning objective 1: Explain the difference between full (absorption) and variable costing, and prepare an income statement using variable costing. 3 Slide 5-4 Variable Costing Inventory costs includes: Direct materials used Direct labor incurred Variable manufacturing overhead Fixed manufacturing overhead treated as a period cost Helpful for internal decision making Not allowed for GAAP reporting Learning objective 1: Explain the difference between full (absorption) and variable costing, and prepare an income statement using variable costing. 4 Slide 5-5 Which of the following complies with GAAP for external reporting purposes? Absolute costing Variable costing Fixed costing Full costing Answer: d. Full costing, also known as absorption costing Test Your Knowledge 1 Learning objective 1: Explain the difference between full (absorption) and variable costing, and prepare an income statement using variable costing. 5 Slide 5-6 Full (Absorption) Costing Learning objective 1: Explain the difference between full (absorption) and variable costing, and prepare an income statement using variable costing. 6 Slide 5-7 Variable Costing Learning objective 1: Explain the difference between full (absorption) and variable costing, and prepare an income statement using variable costing. 7 Slide 5-8 Difference Between Full and Variable Costing The only difference between full and variable costing is their treatment of fixed manufacturing overhead Under full costing, fixed manufacturing overhead is included in inventory These costs enter into the determination of expense only when the inventory is sold Under variable costing, fixed manufacturing overhead becomes a
