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  • Cost Accounting Lecture Absorption vs Variable

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    Ramez Reda
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    This document contains lecture notes on cost accounting that compare absorption costing and variable costing income statements. It includes an example problem calculating the income statements for a company with given production, sales, price, and cost information. The notes show the working paper for the example and the completed income statements using both absorption and variable costing methods. Key differences are that absorption costing includes fixed manufacturing costs in cost of goods sold while variable costing treats them as a deduction from contribution margin.

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    This document contains lecture notes on cost accounting that compare absorption costing and variable costing income statements. It includes an example problem calculating the income statements for a company with given production, sales, price, and cost information. The notes show the working paper for the example and the completed income statements using both absorption and variable costing methods. Key differences are that absorption costing includes fixed manufacturing costs in cost of goods sold while variable costing treats them as a deduction from contribution margin.

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    Download as PPTX, PDF, TXT or read online from Scribd
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    9 views10 pages

    Cost Accounting Lecture Absorption vs Variable

    Uploaded by

    Ramez Reda
    This document contains lecture notes on cost accounting that compare absorption costing and variable costing income statements. It includes an example problem calculating the income statements for a company with given production, sales, price, and cost information. The notes show the working paper for the example and the completed income statements using both absorption and variable costing methods. Key differences are that absorption costing includes fixed manufacturing costs in cost of goods sold while variable costing treats them as a deduction from contribution margin.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
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    of 10

    Lecture (4)

    Cost Accounting

    Fall Semester 2022 / 2023

    2
    »Inventory Costing«

    Chapter 2 - continue

    3
    Absorption Costing Income Statement .2
    Revenues ( sales units x price per unit) .1 xxx

    Beginning Inventory (V.+F.) xxx


    + Manufacturing cost (V. +F.) xxx )-(
    (-) Ending Inventory (V.+F.) (xxx)
    2. Cost of goods sold )xxx(
    Gross Margin .3 xxxxx
    (-) Operating cost ( V. +F.) )xxx(
    4. Operating Net Income xxxxxx

    4
    Variable costing Income Statement -3
    1. Revenues (sales units x price per unit) xxx
    Beginning Inventory xxx
    + variable manufacturing cost xxx
    (-) Ending Inventory (variable only) (Xxx) )-(
    = Variable cost of goods sold xxxx

    + variable operating cost xxx


    2.Total variable cost )xxx(
    3. Contribution Margin xxxx
    (-) fixed Costs ( F.Manufac. +F. Operating) )xxxx(
    5
    4. Operating Net Income xxxx
    :Example
    Beginning Inventory units 0
    Production units units 400,000
    Sales units units 240,000
    Selling price per unit 60$
    Variable manufacturing cost per 30$
    unit
    total Fixed Manufacturing Cost 600,000 $
    total Fixed Marketing and 400,000$
    Administrative Cost

    - Prepare income statement using variable costing.


    - Prepare income statement using absorption costing.

    6
    :Working paper
    Items Absorption Variable
    Revenues= Sales units x 14,400,000$ 14,400,000$
    Selling price per unit
    240,000x60=
    144,000,000
    Manufacturing cost: Variable + fixed Variable only
    - Variable 600,000 + 12,000,000 12,000,000 $
    manufacturing cost 12,600,000$
    (30x 400,000)
    =12,000,000 $
    - Fixed Manufacturing
    Cost ( 1.5 x 400,
    000)= 600,000$
    - Ending Inventory Variable + fixed variable only
    400,000- 240,000 = (30+1.5)x 160,000= 30x160,000=4,800,000
    160,000 units 5,040,00 $

    7
    Absorption Costing Income Statement .1
    Revenues 14,400,000 .1
    Beginning Inventory 0
    + Manufacturing cost:
    Variable manuf. Cost 12,000, 000
    Fixed manuf. Cost 600,000 (-)
    (-) Ending Inventory (5,040,000)
    2. Cost of goods sold (7,560,000 )

    3. Gross Margin 6,840,000


    (-) Operating cost:
    fixed marketing and administrative ( 400,000)

    4. Operating Net Income 6,440,000

    8
    Variable costing Income Statement -2
    1. Revenues 14, 400,000
    Beginning Inventory 0
    + variable manufacturing cost 12,000,000
    (-) Ending Inventory (variable only) (4,800,000)
    = Variable cost of goods sold (-)
    + variable operating cost 0
    2.Total variable cost (7,200,000)
    3. Contribution Margin 7,200,000

    (-) fixed Costs:


    fixed manufacturing cost 600,000
    Fixed marketing and administrative 400,000
    Total fixed cost (1,000,000)

    4. Operating Net Income 6,200,000

    9
    10

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