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Chapter 5. Variable Costing: A Tool for Management. Overview of Absorption and Variable Costing. Penghitungan Biaya per Unit. Harvey Co. memproduksi satu produk jadi, berikut ini informasi :. Penghitungan Biaya per Unit. Unit product cost is determined as follows:. - PowerPoint PPT Presentation
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Variable Costing:A Tool for Management
Chapter
5
© The McGraw-Hill Companies, Inc., 2000Irwin/McGraw-Hill
Absorption Costing
Variable Costing
Direct materialsDirect labor Product costs
Product costs Variable mfg. overhead
Fixed mfg. overheadPeriod costs
Period costs Selling & admin. exp.
Overview of Absorption and Variable Costing
© The McGraw-Hill Companies, Inc., 2000Irwin/McGraw-Hill
Harvey Co. memproduksi satu produk jadi, berikut ini informasi :
Penghitungan Biaya per Unit
© The McGraw-Hill Companies, Inc., 2000Irwin/McGraw-Hill
Unit product cost is determined as follows:
Selling and administrative expenses arealways treated as period expenses and
deducted from revenue.
Penghitungan Biaya per Unit
© The McGraw-Hill Companies, Inc., 2000Irwin/McGraw-Hill
Absorption CostingSales (20,000 × $30) 600,000$Less cost of goods sold: Beginning inventory -$ Add COGM (25,000 × $16) 400,000 Goods available for sale 400,000 Ending inventory (5,000 × $16) 80,000 320,000 Gross margin 280,000 Less selling & admin. exp. Variable FixedNet income
Harvey Co. had no beginning inventory, produced 25,000 units and sold 20,000 units this year.
Income Comparison of Absorption and Variable Costing
© The McGraw-Hill Companies, Inc., 2000Irwin/McGraw-Hill
Harvey Co. had no beginning inventory, produced 25,000 units and sold 20,000 units this year.
Absorption CostingSales (20,000 × $30) 600,000$Less cost of goods sold: Beginning inventory -$ Add COGM (25,000 × $16) 400,000 Goods available for sale 400,000 Ending inventory (5,000 × $16) 80,000 320,000 Gross margin 280,000 Less selling & admin. exp. Variable (20,000 × $3) 60,000$ Fixed 100,000 160,000 Net income 120,000$
Income Comparison of Absorption and Variable Costing
© The McGraw-Hill Companies, Inc., 2000Irwin/McGraw-Hill
Variable CostingSales (20,000 × $30) 600,000$ Less variable expenses: Beginning inventory -$ Add COGM (25,000 × $10) 250,000 Goods available for sale 250,000 Ending inventory (5,000 × $10) 50,000 Variable cost of goods sold 200,000 Variable selling & administrative expenses (20,000 × $3) 60,000 260,000 Contribution margin 340,000 Less fixed expenses: Manufacturing overhead 150,000$ Selling & administrative expenses 100,000 250,000 Net income 90,000$
Now let’s look at variable costing by Harvey Co.
Income Comparison of Absorption and Variable Costing
Variablecostsonly.
All fixedmanufacturing
overhead isexpensed.
© The McGraw-Hill Companies, Inc., 2000Irwin/McGraw-Hill
Let’s compare the methods.
Income Comparison of Absorption and Variable Costing
© The McGraw-Hill Companies, Inc., 2000Irwin/McGraw-Hill
Let’s compare the methods.
Income Comparison of Absorption and Variable Costing
© The McGraw-Hill Companies, Inc., 2000Irwin/McGraw-Hill
Reconciliation
Variable costing net income 90,000$ Add: Fixed mfg. overhead costs deferred in inventory (5,000 units × $6 per unit) 30,000 Absorption costing net income 120,000$
Fixed mfg. overhead $150,000 Units produced 25,000
= = $6.00 per unit
We can reconcile the difference betweenabsorption and variable income as follows:
© The McGraw-Hill Companies, Inc., 2000Irwin/McGraw-Hill
Extending the Example
Let’s look at thesecond yearof operations
for HarveyCompany.
© The McGraw-Hill Companies, Inc., 2000Irwin/McGraw-Hill
Harvey Co. Year 2
In its second year of operations, Harvey Co. started with an inventory of 5,000 units, produced 25,000 units and sold
30,000 units.
© The McGraw-Hill Companies, Inc., 2000Irwin/McGraw-Hill
Harvey Co. Year 2
Unit product cost is determined as follows:
No change in Harvey’scost structure.
© The McGraw-Hill Companies, Inc., 2000Irwin/McGraw-Hill
Harvey Co. Year 2
Now let’s look at Harvey’s income statementassuming absorption costing is used.
© The McGraw-Hill Companies, Inc., 2000Irwin/McGraw-Hill
Absorption CostingSales (30,000 × $30) 900,000$ Less cost of goods sold: Beg. inventory (5,000 × $16) 80,000$ Add COGM (25,000 × $16) 400,000 Goods available for sale 480,000 Ending inventory - 480,000 Gross margin 420,000 Less selling & admin. exp. Variable (30,000 × $3) 90,000$ Fixed 100,000 190,000 Net income 230,000$
Harvey Co. Year 2
These are the 25,000 unitsproduced in the current period.
© The McGraw-Hill Companies, Inc., 2000Irwin/McGraw-Hill
Harvey Co. Year 2
Next, we’ll look at Harvey’s income statementassuming is used.
© The McGraw-Hill Companies, Inc., 2000Irwin/McGraw-Hill
Harvey Co. Year 2Variable
costsonly.
All fixedmanufacturing
overhead isexpensed.
© The McGraw-Hill Companies, Inc., 2000Irwin/McGraw-Hill
Summary
© The McGraw-Hill Companies, Inc., 2000Irwin/McGraw-Hill
Summary
© The McGraw-Hill Companies, Inc., 2000Irwin/McGraw-Hill
Advantages of the Contribution Approach
Advantages
Management finds it easy to understand.
Consistent withCVP analysis.
Net income is closerto net cash flow.
Profit is not affected bychanges in inventories.
Impact of fixedcosts on profitsemphasized.
Consistent with standardcosts and flexible budgeting.
Easier to estimate profitabilityof products and segments.
© The McGraw-Hill Companies, Inc., 2000Irwin/McGraw-Hill
End of Chapter 7
© The McGraw-Hill Companies, Inc., 2000Irwin/McGraw-Hill
Variable versus Absorption Costing
Fixed costs arenot really the costs
of any particularproduct.
All manufacturing costsmust be assigned toproducts to properly
match revenues and costs.
AbsorptionCosting
VariableCosting
© The McGraw-Hill Companies, Inc., 2000Irwin/McGraw-Hill
Variable versus Absorption Costing
Depreciation, taxes, insurance and salariesare just as essential to
products as variable costs.
AbsorptionCosting
VariableCosting
These are capacitycosts and will be
incurred if nothingis produced.
© The McGraw-Hill Companies, Inc., 2000Irwin/McGraw-Hill
I guess we won’t besolving this controversy
today!
Variable versus Absorption Costing
© The McGraw-Hill Companies, Inc., 2000Irwin/McGraw-Hill
Impact of JIT Inventory Methods
In a JIT inventory system . . .
Productiontends to equalsales . . .
So, the difference between variable andabsorption income tends to disappear.