Kế toán, kiểm toán - Chapter 5: Variable costing

Prepared by Debby Bloom-Hill CMA, CFMCHAPTER 5Variable CostingSlide 5-3Full (Absorption) CostingRequired by GAAP for external reporting purposesInventory costs include:Direct materials usedGenerally variableDirect labor incurredGenerally variableManufacturing overheadIncludes both fixed and variable costsLearning objective 1: Explain the difference between full (absorption) and variable costing, and prepare an income statement using variable costing.Slide 5-4Variable CostingInventory costs includes:Direct materials usedDirect labor incurredVariable manufacturing overheadFixed manufacturing overhead treated as a period cost Helpful for internal decision makingNot allowed for GAAP reportingLearning objective 1: Explain the difference between full (absorption) and variable costing, and prepare an income statement using variable costing.Slide 5-5Which of the following complies with GAAP for external reporting purposes?Absolute costingVariable costingFixed costingFull costingAnswer:d. Full costing, also known as absorption costingTest Your Knowledge 1Learning objective 1: Explain the difference between full (absorption) and variable costing, and prepare an income statement using variable costing.Slide 5-6Full (Absorption) CostingLearning objective 1: Explain the difference between full (absorption) and variable costing, and prepare an income statement using variable costing.Slide 5-7Variable CostingLearning objective 1: Explain the difference between full (absorption) and variable costing, and prepare an income statement using variable costing.Slide 5-8Difference Between Full and Variable CostingThe only difference between full and variable costing is their treatment of fixed manufacturing overheadUnder full costing, fixed manufacturing overhead is included in inventoryThese costs enter into the determination of expense only when the inventory is soldUnder variable costing, fixed manufacturing overhead becomes a period expenseLearning objective 1: Explain the difference between full (absorption) and variable costing, and prepare an income statement using variable costing.Slide 5-9Variable Costing Income StatementClassifies all expenses in terms of their cost behavior, either fixed or variableWith variable and fixed expenses separated, the contribution margin can be presentedContribution margin is revenues minus total variable expensesThe contribution margin allows users to make reasonable estimates of how much profit will change with changes in salesLearning objective 1: Explain the difference between full (absorption) and variable costing, and prepare an income statement using variable costing.Slide 5-10 Variable Costing Income StatementLearning objective 1: Explain the difference between full (absorption) and variable costing, and prepare an income statement using variable costing.Slide 5-11Full Costing Income Statement ExampleLearning objective 1: Explain the difference between full (absorption) and variable costing, and prepare an income statement using variable costing.Slide 5-12Variable Costing Income Statement ExampleLearning objective 1: Explain the difference between full (absorption) and variable costing, and prepare an income statement using variable costing.Slide 5-13The full costing income statement cannot be used to estimate the increase in profit due to an increase in salesThe reason is that cost of goods sold includes both fixed and variable costsThe fixed costs will not increase when sales increaseUnder full costing we do not know how much of cost of goods sold is fixed or variableVariable Costing vs. FullCosting Income StatementLearning objective 1: Explain the difference between full (absorption) and variable costing, and prepare an income statement using variable costing.Slide 5-14Effects of Production on IncomeExample – Clausen TubeSelling price $2,000Variable costs (per unit):Materials = $600/unitLabor = $225/unitVariable mfg. overhead = $75/unitVariable selling expense = $40/unitFixed mfg. overhead = $1,200,000Fixed selling expense = $100,000Fixed administrative expense = $500,000Production = 5,000 unitsLearning objective 2: Discuss the effect of production on full and variable costing income; explain the impact of JIT (just-in-time) on the difference between full and variable costing income; and discuss the benefits of variable costing for internal reporting purposes.Slide 5-15Clausen TubeFull Cost per Unit Full cost per unit for 5,000 units is calculated as follows:Total Material Costs$600 per unitTotal labor costs$225 per unitTotal variable OH$75 per unitFixed Overhead$1,200,000/5,000 units$240 per unitFull Cost per Unit= $1,140 per unitLearning objective 2: Discuss the effect of production on full and variable costing income; explain the impact of JIT (just-in-time) on the difference between full and variable costing income; and discuss the benefits of variable costing for internal reporting purposes.Slide 5-16Clausen TubeVariable Cost per Unit Variable cost per unit for 5,000 units is calculated as follows:Total Material Costs$600 per unitTotal labor costs$225 per unitTotal variable OH$75 per unitVariable Cost per Unit= $900 per unitLearning objective 2: Discuss the effect of production on full and variable costing income; explain the impact of JIT (just-in-time) on the difference between full and variable costing income; and discuss the benefits of variable costing for internal reporting purposes.Slide 5-17Clausen Tube – Income StatementSelling price = $2,000/unitFull cost = $1,140/unitVariable cost = $900/unitVariable selling expense = $40/unitFixed overhead = $1,200,000Fixed selling expense = $100,000Fixed administrative expense= $500,000Learning objective 2: Discuss the effect of production on full and variable costing income; explain the impact of JIT (just-in-time) on the difference between full and variable costing income; and discuss the benefits of variable costing for internal reporting purposes.Clausen Tube – Full Costing Income StatementProduction equals sales (5,000 units)Slide 5-18Learning objective 2: Discuss the effect of production on full and variable costing income; explain the impact of JIT (just-in-time) on the difference between full and variable costing income; and discuss the benefits of variable costing for internal reporting purposes.Clausen Tube – Variable Costing Income StatementProduction equals sales (5,000 units)Slide 5-19Learning objective 2: Discuss the effect of production on full and variable costing income; explain the impact of JIT (just-in-time) on the difference between full and variable costing income; and discuss the benefits of variable costing for internal reporting purposes.Slide 5-20Quantity Produced Equals Quantity SoldWhen the quantity produced equals the quantity sold, there is no difference between net income calculated using full cost versus variable costingSince all units produced are sold, no fixed cost ends up in ending inventoryThe only difference is that variable costing calculates the contribution marginLearning objective 2: Discuss the effect of production on full and variable costing income; explain the impact of JIT (just-in-time) on the difference between full and variable costing income; and discuss the benefits of variable costing for internal reporting purposes.Slide 5-21Clausen TubeFull Cost per Unit Full cost per unit for 6,000 units is calculated as follows:Total Material Costs$600 per unitTotal labor costs$225 per unitTotal variable OH$75 per unitFixed Overhead$1,200,000/6,000 units$200 per unitFull Cost per Unit= $1,100 per unitLearning objective 2: Discuss the effect of production on full and variable costing income; explain the impact of JIT (just-in-time) on the difference between full and variable costing income; and discuss the benefits of variable costing for internal reporting purposes.Clausen Tube – Full Costing Income StatementProduction (6,000 units) is greater than sales (4,800 units)Slide 5-22Learning objective 2: Discuss the effect of production on full and variable costing income; explain the impact of JIT (just-in-time) on the difference between full and variable costing income; and discuss the benefits of variable costing for internal reporting purposes.Clausen Tube – Variable Costing Income StatementProduction (6,000 units) is greater than sales (4,800 units)Slide 5-23Learning objective 2: Discuss the effect of production on full and variable costing income; explain the impact of JIT (just-in-time) on the difference between full and variable costing income; and discuss the benefits of variable costing for internal reporting purposes.Slide 5-24Quantity Produced is Greater Than Quantity SoldWhen the quantity produced is greater than the quantity sold income will be greater under full costing as opposed to variable costingUnder full costing, inventory cost includes fixed manufacturing overheadUnder variable costing, fixed manufacturing overhead is a period costLearning objective 2: Discuss the effect of production on full and variable costing income; explain the impact of JIT (just-in-time) on the difference between full and variable costing income; and discuss the benefits of variable costing for internal reporting purposes.Slide 5-25Clausen TubeFull Cost per Unit Full cost per unit for 6,000 units is calculated as follows:Total Material Costs$600 per unitTotal labor costs$225 per unitTotal variable OH$75 per unitFixed Overhead$1,200,000/6,000 units$200 per unitFull Cost per Unit= $1,100 per unitLearning objective 2: Discuss the effect of production on full and variable costing income; explain the impact of JIT (just-in-time) on the difference between full and variable costing income; and discuss the benefits of variable costing for internal reporting purposes.Clausen Tube – Full Costing Income StatementProduction (6,000 units) is less than sales (7,200 units)Slide 5-26Learning objective 2: Discuss the effect of production on full and variable costing income; explain the impact of JIT (just-in-time) on the difference between full and variable costing income; and discuss the benefits of variable costing for internal reporting purposes.Clausen Tube – Variable Costing Income StatementProduction (6,000 units) is less than sales (7,200 units)Slide 5-27Learning objective 2: Discuss the effect of production on full and variable costing income; explain the impact of JIT (just-in-time) on the difference between full and variable costing income; and discuss the benefits of variable costing for internal reporting purposes.Slide 5-28Quantity Produced is Less Than Quantity SoldWhen the quantity produced is less than the quantity sold, income will be greater under variable costing as opposed to full costingBeginning inventory under fixed costing includes fixed manufacturing overheadWhen the beginning inventory is charged to cost of goods sold the charge will be higher under full costingLearning objective 2: Discuss the effect of production on full and variable costing income; explain the impact of JIT (just-in-time) on the difference between full and variable costing income; and discuss the benefits of variable costing for internal reporting purposes.Slide 5-29Variable Costing for External ReportingLearning objective 2: Discuss the effect of production on full and variable costing income; explain the impact of JIT (just-in-time) on the difference between full and variable costing income; and discuss the benefits of variable costing for internal reporting purposes.Slide 5-30Summit Manufacturing, Inc. produces snow shovels. The selling price is $25. Costs are:Test Your Knowledge 2Production is 42,000 snow shovels. Calculate full cost per unit.Learning objective 2: Discuss the effect of production on full and variable costing income; explain the impact of JIT (just-in-time) on the difference between full and variable costing income; and discuss the benefits of variable costing for internal reporting purposes.Slide 5-31Summit Manufacturing, Inc. produces snow shovels. The selling price is $25. Costs are:Test Your Knowledge 2Production is 42,000 snow shovels. Full cost is $13 per unit.Learning objective 2: Discuss the effect of production on full and variable costing income; explain the impact of JIT (just-in-time) on the difference between full and variable costing income; and discuss the benefits of variable costing for internal reporting purposes.Slide 5-32Summit Manufacturing, Inc. produces snow shovels. The selling price is $25. Costs are:Test Your Knowledge 3Production is 42,000 snow shovels. Calculate variable cost per unit.Learning objective 2: Discuss the effect of production on full and variable costing income; explain the impact of JIT (just-in-time) on the difference between full and variable costing income; and discuss the benefits of variable costing for internal reporting purposes.Slide 5-33Summit Manufacturing, Inc. produces snow shovels. The selling price is $25. Costs are:Test Your Knowledge 3Production is 42,000 snow shovels. Variable cost is $9 per unit.Learning objective 2: Discuss the effect of production on full and variable costing income; explain the impact of JIT (just-in-time) on the difference between full and variable costing income; and discuss the benefits of variable costing for internal reporting purposes.Slide 5-34Impact of Method Selection on Income StatementUnits produced = units soldNo difference in net incomeUnits produced greater than units soldFull costing yields higher net incomeUnits produced less than units soldVariable costing yields higher net incomeLearning objective 2: Discuss the effect of production on full and variable costing income; explain the impact of JIT (just-in-time) on the difference between full and variable costing income; and discuss the benefits of variable costing for internal reporting purposes.Slide 5-35Reducing ProductionLearning objective 2: Discuss the effect of production on full and variable costing income; explain the impact of JIT (just-in-time) on the difference between full and variable costing income; and discuss the benefits of variable costing for internal reporting purposes.Slide 5-36Kincade Faucets produces a variety of faucets. During the year, the company incurred $400,000 of depreciation expense on its manufacturing equipment. How much depreciation expense will be in Finished Goods Inventory under variable costing? $400,000$285,714$0None of the aboveAnswer:Depreciation is a fixed cost which is expensed as a period cost under variable costing.Test Your Knowledge 4Learning objective 2: Discuss the effect of production on full and variable costing income; explain the impact of JIT (just-in-time) on the difference between full and variable costing income; and discuss the benefits of variable costing for internal reporting purposes.Slide 5-37Impact of JIT on IncomeCompanies using JIT typically have low levels of inventoryUnits produced are approximately equal to units soldDifference between full costing and variable costing is likely to be very small.Learning objective 2: Discuss the effect of production on full and variable costing income; explain the impact of JIT (just-in-time) on the difference between full and variable costing income; and discuss the benefits of variable costing for internal reporting purposes.Slide 5-38Benefits of Variable Costing for Internal ReportingVariable costing facilitates cost-volume-profit (CVP) analysisSeparates fixed and variable costsAllows managers to accurately estimate the impact of changes in volume on cost and profitCannot be answered using full costingLearning objective 2: Discuss the effect of production on full and variable costing income; explain the impact of JIT (just-in-time) on the difference between full and variable costing income; and discuss the benefits of variable costing for internal reporting purposes.Slide 5-39Benefits of Variable Costing for Internal ReportingVariable costing limits management of earnings via production volumeManagers are often compensated based on income in their divisionFull costing produces higher income when production is greater than salesManagers have an incentive to manage earnings under full costingLearning objective 2: Discuss the effect of production on full and variable costing income; explain the impact of JIT (just-in-time) on the difference between full and variable costing income; and discuss the benefits of variable costing for internal reporting purposes.Slide 5-40Impact of Changes in SalesLearning objective 2: Discuss the effect of production on full and variable costing income; explain the impact of JIT (just-in-time) on the difference between full and variable costing income; and discuss the benefits of variable costing for internal reporting purposes.Slide 5-41Copyright © 2016 John Wiley & Sons, Inc. 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