Exhibit1 Exhibit 3 Variable Costing - FIFO Absorption Costing - FIFOo Product co

Question

Exhibit1 Exhibit 3 Variable Costing - FIFO Absorption Costing - FIFOo Product costs: Direct materials Direct labor Variable MOH Fixed MOH Year 1 Year 2 Year 3 Product costs: Direct materials Direct labor Variable MOH Fixed MOH Year 1 Year 2 Year 3 30 18 30 18 30 18 30.00 18.00 6.00 6.00 60.00 30.00 18.00 6.00 8.00 62.00 30.00 18.00 6.00 7.50 61.50 Total product cost per unit 54 54 54 Total product cost per unit variable cost income statement contribution margin: Per Unit Year 1 Year 2 Year 3 Absorption cost income statement-traditional: Year 1 Year 2 Year 3 Volume Sales Variable cost of goods sold Variable selling & administrative expense Contribution margin Fixed manufacturing overhead Fixed selling & administrative expense Net operating income 80,000 90,000 75,000 70 5.600,0006,300.000 5.250,000 544,320,0004,860,0004,050,000 Volume Sales Cost of goods sold Gross margin Selling & administrative expense Net operating income 90,000 75,000 5,600,0006,300,0005.250.000 4,800,0005,540,0004,615,000 635,000 480,000 155,000 80,000 320,000 960,000 1.080.000 600,000 180,000 180,000 300,000 ost of 900,000Gross 600,000S 180.000Net o 120,000 360.000 800,000 500,000 300,000 760,000 540,000 220,000 12 600,000 180,000 300,000

Explanation / Answer

1.variable costing is direct costing or marginal costing and absorption costing is known as full costing or traditional costing because fixed cost also included in product cost.

2.Variable costing method used by internal management for decision making purposes. Absorption costing provides information that is used by internal management as well as by external parties like creditors, government agencies.
3.Under Variable costing Costs are differentiated based on Fixed and variable cost .Under absorption costing system, Direct and indirect costs are the base for classification.

4.Total Product cost varies under variable costing vs absorption costing.

5.Profit under variable costing is different from profit under absorption costing.

6.Variable Manufacturing overhead is considered as direct cost under absorption costing .but in it is considered as variable cost under variable costing regardless whether it is manufacturing or administrative.

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