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Topic focus 3 - Variable and absorption costing. After studying this chapter you will be able to understand: What is variable costing? Comparison, jersey fabric product costs, units sold = units produced, units sold UNITS PRODUCED Absorption Costing Variable Costing EFFECTS ON OPERATING INCOME | TOPIC FOCUS ON VARIABLE AND ABSORPTION COSTING 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 COMPARISON JERSEY FABRIC PRODUCT COSTS Absorption Costing Variable Costing Direct Materials $1.26 $1.26 Direct Labor 0.54 0.54 Variable Overhead 0.30 0.30 Fixed Overhead 1.50 Total cost per yard $3.60 $2.10 UNITS SOLD = UNITS PRODUCED Absorption Costing Variable Costing UNITS SOLD UNITS PRODUCED Absorption Costing Variable Costing EFFECTS ON OPERATING INCOME | TOPIC FOCUS ON VARIABLE AND ABSORPTION COSTING 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 COMPARISON JERSEY FABRIC PRODUCT COSTS Absorption Costing Variable Costing Direct Materials $1.26 $1.26 Direct Labor 0.54 0.54 Variable Overhead 0.30 0.30 Fixed Overhead 1.50 Total cost per yard $3.60 $2.10 UNITS SOLD = UNITS PRODUCED Absorption Costing Variable Costing UNITS SOLD UNITS PRODUCED Absorption Costing Variable Costing EFFECTS ON OPERATING . | TOPIC FOCUS ON VARIABLE AND ABSORPTION COSTING 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 COMPARISON JERSEY FABRIC PRODUCT COSTS Absorption Costing Variable Costing Direct Materials $1.26 $1.26 Direct Labor 0.54 0.54 Variable Overhead 0.30 0.30 Fixed Overhead 1.50 Total cost per yard $3.60 $2.10 UNITS SOLD = UNITS PRODUCED Absorption Costing Variable Costing UNITS SOLD UNITS PRODUCED Absorption Costing Variable Costing EFFECTS ON OPERATING INCOME | TOPIC FOCUS ON VARIABLE AND ABSORPTION COSTING 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 COMPARISON JERSEY FABRIC PRODUCT COSTS Absorption Costing Variable Costing Direct Materials $1.26 $1.26 Direct Labor 0.54 0.54 Variable Overhead 0.30 0.30 Fixed Overhead 1.50 Total cost per yard $3.60 $2.10 UNITS SOLD = UNITS PRODUCED Absorption Costing Variable Costing UNITS SOLD UNITS PRODUCED Absorption Costing Variable Costing EFFECTS ON OPERATING .