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Chapter 6 Lecture Notes

Variable Costing and Segment Reporting: Tools for Management

JUST ONE THING
- the only thing that is different is the cost classification of FMOH

FMOH

| |Absorption costing (full cost) | | |Variable costing | |
| Sales |Product cost (COGS) | Sales |Product cost |
|- COGS |DM |-Variable Expenses |DM |
|Gross Profit |DL |Contribution Margin |DL |
| |VMOH | |VMOH |
|- Operating expenses |FMOH (product cost) |-Fixed expenses |period cost-- VS&A |
|Net income | |Net income | |
| |Period costs (op. exp.) | |Period costs (fixed) |
| |VS&A | |FMOH |
| |FS&A | |FS&A |

Why two different methods?

UNIT PRODUCT COST COMPUTATIONS (Per Unit Product “Inventory” Costs)

|Absorption costing Product Cost |Variable costing Product Cost