Accounting

1. Full (Absorption) Costing
1. Full (Absorption) Costing includes:
a. Direct material
b. Direct labor
c. Manufacturing overhead (both
variable and fixed)
2. Decision making and “what-if”
decisions are difficult because of the
commingling of fixed and variable
overhead.
3. Required for GAAP.

2. Variable Costing
1. Variable Costing includes:
a. Direct material
b. Direct labor
c. Variable Manufacturing overhead
2. Variable Costing lends itself well to
decision making and “what-if”
analyses.
3. Not allowed for GAAP.

3. Differences Between Full
(Absorption) and Variable
Costing
1. Fixed manufacturing overhead
(included in Full Costing).
2. Fixed manufacturing costs, like
depreciation, are a period
expense on the income statement
under variable costing.
3. Fixed manufacturing costs, like
depreciation, are inventoried until
sold under full costing.

4. Variable Costing Income
Statement
1. The format uses a contribution margin
approach.
2. All costs, manufacturing, selling and
administrative, are classified as either
fixed or variable.

5. Variable Costing Income
Statement Example
Sales $100,000
Less Variable:
Variable COGS $20,000
Variable Selling 10,000
Variable Admin. 5,000 35,000
Contribution Margin 65,000
Less Fixed:
Fixed Mfg. 10,000
Fixed Selling 8,000
Fixed Admin 7,000 25,000
Net Income 40,000

6. Full (Absorption) Costing
Income Statement Example
Sales $100,000
Less COGS 30,000
Gross Margin 70,000
Less Selling and Admin:
Selling 18,000
Admin 12,000 30,000
Net Income 40,000

7. Quick Review Question #1
1. Which of the following lends itself well
to C-V-P Analysis?
a. Full Costing
b. Absorption Costing
c. Variable Costing
d. Average Costing

8. Quick Review Answer #1
1. Which of the following lends itself well
to C-V-P Analysis?
a. Full Costing
b. Absorption Costing
c. Variable Costing
d. Average Costing

9. Quick Review Question #2
2. Which of the following complies with
GAAP for external reporting purposes?
a. Absolute costing
b. Variable costing
c. Fixed costing
d. Absorption costing

10. Quick Review Answer #2
2. Which of the following complies with
GAAP for external reporting purposes?
a. Absolute costing
b. Variable costing
c. Fixed costing
d. Absorption costing

11. Quick Review Question #3
3. Which of the following lends itself well
to internal decision making?
a. Full costing
b. Variable costing
c. Absorption costing
d. None of these

12. Quick Review Answer #3
3. Which of the following lends itself well
to internal decision making?
a. Full costing
b. Variable costing
c. Absorption costing
d. None of these