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Chapter 17 - Measuring and assigning costs for income statements. In this chapter students will be able to: Prepare absorption and variable costing income statements and reconcile the resulting net incomes, discuss the factors that affect the choice of production measures for allocating fixed overhead. | Lecture Cost management Measuring monitoring and motivating performance 3rd edition Chapter 17 COST MANAGEMENT Measuring Monitoring and Motivating Performance Third Canadian Edition ELDENBURG WOLCOTT CHEN COOK Chapter 17 Measuring and Assigning Costs for Income Statements Learning Objectives LO1 Prepare absorption and variable costing income statements and reconcile the resulting net incomes LO2 Discuss the factors that affect the choice of production measures for allocating fixed overhead LO3 Prepare absorption and variable costing income statements considering beginning inventory balances and evaluate the impact of inventory on income LO4 Prepare throughput costing income statements and evaluate absorption variable and throughput costing income LO1 Prepare absorption and variable costing income statements and reconcile the resulting net incomes Absorption Costing Under absorption costing all production costs are recorded on the balance sheet as part of the cost of inventory and are then expensed as part of the cost of goods sold when units are sold. Both fixed and variable production costs are treated as product costs. Direct costs are traced to products and manufacturing overhead is allocated to products. Absorption Costing Overhead cost can be allocated to units using either an actual or an estimated allocation rate. Absorption Costing Income Statement Example Russell Corporation produces a product that sells for 10. In 2012 there were 10 000 units in beginning finished goods inventory that had a per unit cost of 4.45. The company expected to produce and actually did produce 80 000 units and 62 000 units were sold. The costs incurred in 2012 are shown below. Given the cost information below compute the inventoriable costs per unit under absorption costing. 2012 Direct materials 60 000 Direct materials 0.75 Direct labour 128 000 Direct labour 1.60 Variable factory overhead 68 000 Variable mfg overhead 0.85 Variable non-mfg costs 55 800 Fixed mfg overhead 1.25
