Variable-vs-Absorption-Costing-A-Tool-for-Management变量与吸收的管理成本的工具课件

Variablevs.AbsorptionCosting:AToolforManagementChapterSevenVariablevs.AbsorptionCostinLearningObjectives1. Explainhowvariablecostingdiffersfromabsorptioncostingandcomputeunitproductcostsundereachmethod.2. Prepareincomestatementsusingbothvariableandabsorptioncosting.3. Reconcilevariablecostingandabsorptioncostingoperatingincomes,andexplainwhythetwoamountsdiffer. Afterstudyingthischapter,youshouldbeableto:LearningObjectives1. ExplainLearningObjectives4. Explaintheadvantagesanddisadvantagesofbothvariableandabsorptioncosting.5. ExplainhowtheuseofJITreducesthedifferenceinreportedoperatingincomeunderthevariableandabsorptioncostingmethods. Afterstudyingthischapter,youshouldbeableto:LearningObjectives4. ExplainOverviewofAbsorption

andVariableCostingDirectMaterialsDirectLabourVariableManufacturingOverheadFixedManufacturingOverheadVariableSellingandAdministrativeExpensesFixedSellingandAdministrativeExpensesVariable

CostingAbsorption

CostingProduct

CostsPeriod

CostsProduct

CostsPeriod

CostsOverviewofAbsorption

andVarQuickCheck Whichmethodwillproducethehighestvaluesforworkinprocessandfinishedgoodsinventories?a.Absorptioncosting.b.Variablecosting.c.Theyproducethesamevaluesforthese

inventories.d.Itdepends...QuickCheck Whichmethodwi Whichmethodwillproducethehighestvaluesforworkinprocessandfinishedgoodsinventories?a.Absorptioncosting.b.Variablecosting.c.Theyproducethesamevaluesforthese

inventories.d.Itdepends...QuickCheck WhichmethodwillproducethHarveyCompanyproducesasingleproduct

withthefollowinginformationavailable:UnitCostComputationsHarveyCompanyproducesasingUnitproductcostisdeterminedasfollows:Sellingandadministrativeexpensesare

alwaystreatedas

periodexpenses

anddeductedfromrevenueasincurred.UnitCostComputationsUnitproductcostisdetermineIncomeComparisonof

AbsorptionandVariableCosting Let’sassumethefollowingadditionalinformationforHarveyCompany.20,000unitsweresoldduringtheyearatapriceof$30each.Therewerenounitsinbeginninginventory.

Now,let’scomputenetoperating

incomeusingbothabsorption

andvariablecosting.IncomeComparisonof

AbsorptioAbsorptionCostingAbsorptionCostingVariable

manufacturing

costsonly.Allfixed

manufacturing

overheadis

expensed.VariableCostingVariable

manufacturing

costsIncomeComparisonof

AbsorptionandVariableCostingLet’scomparethemethods.IncomeComparisonof

AbsorptioReconciliationFixedmfg.Overhead$150,000Unitsproduced25,000units==$6.00perunitWecanreconcilethedifferencebetween

absorptionandvariableincomeasfollows:ReconciliationFixedmfg.OverhExtendedComparisonofIncomeDataHarveyCompanyYearTwoExtendedComparisonofIncomeUnitCostComputationsSincetherewasnochangeinthevariablecosts

perunit,totalfixedcosts,orthenumberof

unitsproduced,theunitcostsremainunchanged.UnitCostComputationsSincethAbsorptionCostingThesearethe25,000unitsproducedinthecurrentperiod.AbsorptionCostingThesearethVariableCostingAllfixed

manufacturing

overheadis

expensed.Variable

manufacturing

costsonly.VariableCostingAllfixed

manuReconciliationWecanreconcilethedifferencebetween

absorptionandvariableincomeasfollows:Fixedmfg.Overhead$150,000Unitsproduced25,000units==$6.00perunitReconciliationWecanreconcileIncomeComparisonIncomeComparisonSummarySummaryEffectofChangesinProduction

onNetOperatingIncomeLet’srevisetheHarveyCompanyexample.Inthepreviousexample,

25,000unitswereproducedeachyear,

butsalesincreasedfrom20,000unitsinyear

oneto30,000unitsinyeartwo.Inthisrevisedexample,

productionwilldiffereachyearwhile

saleswillremainconstant.EffectofChangesinProductioEffectofChangesinProduction

HarveyCompanyYearOneEffectofChangesinProductioUnitproductcostisdeterminedasfollows:UnitCostComputationsforYearOneSincethenumberofunitsproducedincreased

inthisexample,whilethefixedmanufacturingoverhead

remainedthesame,theabsorptionunitcostisless.UnitproductcostisdetermineAbsorptionCosting:YearOneAbsorptionCosting:YearOneVariableCosting:YearOneVariable

manufacturing

costsonly.Allfixed

manufacturing

overheadis

expensed.VariableCosting:YearOneVarEffectofChangesinProduction

HarveyCompanyYearTwoEffectofChangesinProductioUnitproductcostisdeterminedasfollows:UnitCostComputationsforYearTwoSincethenumberofunitsproduceddecreasedinthe

secondyear,whilethefixedmanufacturingoverhead

remainedthesame,theabsorptionunitcostisnowhigher.UnitproductcostisdetermineAbsorptionCosting:YearTwoThesearethe20,000unitsproducedinthecurrent

periodatthehigherunitcostof$17.50each.AbsorptionCosting:YearTwoTVariableCosting:YearTwoAllfixed

manufacturing

overheadis

expensed.Variable

manufacturing

costsonly.VariableCosting:YearTwoAllIncomeComparisonNetoperatingincomeisnotaffectedbychangesin

productionusingvariablecosting.Netoperatingincomeisaffectedbychangesinproduction

usingabsorptioncostingeventhoughthenumberofunits

soldisthesameeachyear.ConclusionsIncomeComparisonNetoperatImpactontheManagerOpponentsofabsorptioncostingarguethatshifting

fixedmanufacturingoverheadcostsbetweenperiods

canleadtomisinterpretationsandfaultydecisions.Thosewhofavorvariablecostingarguethattheincome

statementsareeasiertounderstandbecausenetoperating

incomeisonlyaffectedbychangesinunitsales.The

resultingincomeamountsaremoreconsistentwith

managers’expectations.ImpactontheManagerOpponentsCVPAnalysis,DecisionMaking

andAbsorptioncostingAbsorptioncostingdoesnotsupportCVPanalysisbecauseitessentiallytreatsfixedmanufacturingoverheadasavariablecostbyassigningaperunitamountofthefixedoverheadtoeachunitofproduction.Treatingfixedmanufacturingoverheadasa

variablecostcan:Leadtofaultypricingdecisionsandkeep/drop

decisions.Producepositivenetoperatingincomeeven

whenthenumberofunitssoldislessthanthe

breakevenpoint.CVPAnalysis,DecisionMaking

ExternalReportingandIncomeTaxesThoughGAAPallowtheuseofeithermethod,absorptioncostingIsthepredominantmethodusedinCanada.Eithervariableor

absorptioncostingcanbe

usedwhenfilingincome

taxreturns.Sincetopexecutives

areusuallyevaluatedbasedon

externalreportstoshareholders,

theymayfeelthatdecisions

shouldbebasedon

absorptioncostincome.ExternalReportingandIncomeAdvantagesofVariableCosting

andtheContributionApproachAdvantagesManagementfinds

itmoreuseful.ConsistentwithCVPanalysis.Netoperatingincomeiscloserto

netcashflow.Profitisnotaffectedby

changesininventories.Consistentwithstandard

costsandflexiblebudgeting.Impactoffixedcostsonprofitsemphasized.Easiertoestimateprofitability

ofproductsandsegments.AdvantagesofVariableCostingVariable

CostingVariableversusAbsorptionCostingAbsorption

CostingFixedmanufacturing

costsmustbeassigned

toproductstoproperly

matchrevenuesand

costs.Fixedmanufacturing

costsarecapacitycosts

andwillbeincurred

evenifnothingis

produced.Variable

CostingVariableversuVariableCostingandthe

TheoryofConstraints(TOC)CompaniesinvolvedinTOCuseaformofvariablecosting,buttreatingdirectlabourasafixedcostforthreereasons:Manycompanieshaveacommitmenttoguarantee

workersaminimumnumberofpaidhours.TOCemphasizestheroleofdirectlabourin

continuousimprovement.Fluctuatinglevelsof

directlabourcandevastatemoraleanddefeat

theroleofemployeesincontinuousimprovement

efforts.Directlabourisusuallynottheconstraint.VariableCostingandthe

TheorImpactofJITInventoryMethodsInaJITinventorysystem...Production

tendstoequal

sales...So,thedifferencebetweenvariableandabsorptionincometendstodisappear.ImpactofJITInventoryMethodReviewProblemContrastingVariableandAbsorptionCostingReviewProblemContrastingVariReviewProblem DexterCompanyproducesandsellsasingleproduct,awoodenhandloomforweavingsmallitemssuchasscarves.Selectedcostandoperatingdatarelatingtotheproductfortwoyearsaregivenbelow:ReviewProblem DexterCompanyReviewProblemAssumethatthecompanyusesabsorptioncosting.Computetheunitproductcostineachyear.Prepareanincomestatementforeachyear.Assumethatthecompanyusesvariablecosting.Computetheunitproductcostineachyear.Prepareanincomestatementforeachyear.Reconcilethevariablecostingandabsorptioncostingoperatingincomes.ReviewProblemAssumethattheEndofChapter7EndofChapter7Variablevs.AbsorptionCosting:AToolforManagementChapterSevenVariablevs.AbsorptionCostinLearningObjectives1. Explainhowvariablecostingdiffersfromabsorptioncostingandcomputeunitproductcostsundereachmethod.2. Prepareincomestatementsusingbothvariableandabsorptioncosting.3. Reconcilevariablecostingandabsorptioncostingoperatingincomes,andexplainwhythetwoamountsdiffer. Afterstudyingthischapter,youshouldbeableto:LearningObjectives1. ExplainLearningObjectives4. Explaintheadvantagesanddisadvantagesofbothvariableandabsorptioncosting.5. ExplainhowtheuseofJITreducesthedifferenceinreportedoperatingincomeunderthevariableandabsorptioncostingmethods. Afterstudyingthischapter,youshouldbeableto:LearningObjectives4. ExplainOverviewofAbsorption

andVariableCostingDirectMaterialsDirectLabourVariableManufacturingOverheadFixedManufacturingOverheadVariableSellingandAdministrativeExpensesFixedSellingandAdministrativeExpensesVariable

CostingAbsorption

CostingProduct

CostsPeriod

CostsProduct

CostsPeriod

CostsOverviewofAbsorption

andVarQuickCheck Whichmethodwillproducethehighestvaluesforworkinprocessandfinishedgoodsinventories?a.Absorptioncosting.b.Variablecosting.c.Theyproducethesamevaluesforthese

inventories.d.Itdepends...QuickCheck Whichmethodwi Whichmethodwillproducethehighestvaluesforworkinprocessandfinishedgoodsinventories?a.Absorptioncosting.b.Variablecosting.c.Theyproducethesamevaluesforthese

inventories.d.Itdepends...QuickCheck WhichmethodwillproducethHarveyCompanyproducesasingleproduct

withthefollowinginformationavailable:UnitCostComputationsHarveyCompanyproducesasingUnitproductcostisdeterminedasfollows:Sellingandadministrativeexpensesare

alwaystreatedas

periodexpenses

anddeductedfromrevenueasincurred.UnitCostComputationsUnitproductcostisdetermineIncomeComparisonof

AbsorptionandVariableCosting Let’sassumethefollowingadditionalinformationforHarveyCompany.20,000unitsweresoldduringtheyearatapriceof$30each.Therewerenounitsinbeginninginventory.

Now,let’scomputenetoperating

incomeusingbothabsorption

andvariablecosting.IncomeComparisonof

AbsorptioAbsorptionCostingAbsorptionCostingVariable

manufacturing

costsonly.Allfixed

manufacturing

overheadis

expensed.VariableCostingVariable

manufacturing

costsIncomeComparisonof

AbsorptionandVariableCostingLet’scomparethemethods.IncomeComparisonof

AbsorptioReconciliationFixedmfg.Overhead$150,000Unitsproduced25,000units==$6.00perunitWecanreconcilethedifferencebetween

absorptionandvariableincomeasfollows:ReconciliationFixedmfg.OverhExtendedComparisonofIncomeDataHarveyCompanyYearTwoExtendedComparisonofIncomeUnitCostComputationsSincetherewasnochangeinthevariablecosts

perunit,totalfixedcosts,orthenumberof

unitsproduced,theunitcostsremainunchanged.UnitCostComputationsSincethAbsorptionCostingThesearethe25,000unitsproducedinthecurrentperiod.AbsorptionCostingThesearethVariableCostingAllfixed

manufacturing

overheadis

expensed.Variable

manufacturing

costsonly.VariableCostingAllfixed

manuReconciliationWecanreconcilethedifferencebetween

absorptionandvariableincomeasfollows:Fixedmfg.Overhead$150,000Unitsproduced25,000units==$6.00perunitReconciliationWecanreconcileIncomeComparisonIncomeComparisonSummarySummaryEffectofChangesinProduction

onNetOperatingIncomeLet’srevisetheHarveyCompanyexample.Inthepreviousexample,

25,000unitswereproducedeachyear,

butsalesincreasedfrom20,000unitsinyear

oneto30,000unitsinyeartwo.Inthisrevisedexample,

productionwilldiffereachyearwhile

saleswillremainconstant.EffectofChangesinProductioEffectofChangesinProduction

HarveyCompanyYearOneEffectofChangesinProductioUnitproductcostisdeterminedasfollows:UnitCostComputationsforYearOneSincethenumberofunitsproducedincreased

inthisexample,whilethefixedmanufacturingoverhead

remainedthesame,theabsorptionunitcostisless.UnitproductcostisdetermineAbsorptionCosting:YearOneAbsorptionCosting:YearOneVariableCosting:YearOneVariable

manufacturing

costsonly.Allfixed

manufacturing

overheadis

expensed.VariableCosting:YearOneVarEffectofChangesinProduction

HarveyCompanyYearTwoEffectofChangesinProductioUnitproductcostisdeterminedasfollows:UnitCostComputationsforYearTwoSincethenumberofunitsproduceddecreasedinthe

secondyear,whilethefixedmanufacturingoverhead

remainedthesame,theabsorptionunitcostisnowhigher.UnitproductcostisdetermineAbsorptionCosting:YearTwoThesearethe20,000unitsproducedinthecurrent

periodatthehigherunitcostof$17.50each.AbsorptionCosting:YearTwoTVariableCosting:YearTwoAllfixed

manufacturing

overheadis

expensed.Variable

manufacturing

costsonly.VariableCosting:YearTwoAllIncomeComparisonNetoperatingincomeisnotaffectedbychangesin

productionusingvariablecosting.Netoperatingincomeisaffectedbychangesinproduction

usingabsorptioncostingeventhoughthenumberofunits

soldisthesameeachyear.ConclusionsIncomeComparisonNetoperatImpactontheManagerOpponentsofabsorptioncostingarguethatshifting

fixedmanufacturingoverheadcostsbetweenperiods

canleadtomisinterpretationsandfaultydecisions.Thosewhofavorvariablecostingarguethattheincome

statementsareeasiertounderstandbecausenetoperating

incomeisonlyaffectedbychangesinunitsales.The

resultingincomeamountsaremoreconsistentwith

managers’expectations.ImpactontheManagerOpponentsCVPAnalysis,DecisionMaking

andAbsorptioncostingAbsorptioncostingdoesnotsupportCVPanalysisbecauseitessentiallytreatsfixedmanufacturingoverheadasavariablecostbyassigningaperunitamountofthefixedoverheadtoeachunitofproduction.Treatingfixedmanufacturingoverheadasa

variablecostcan:Leadtofaultypricingdecisionsandkeep/drop

decisions.Producepositivenetoperatingincomeeven

whenthenumberofunitssoldislessthanthe

breakevenpoint.CVPAnalysis,DecisionMaking

ExternalReportingandIncomeTaxesThoughGAAPallowtheuseofeithermethod,absorptioncostingIsthepredominantmethodusedinCanada.Eithervariableor

absorptioncostingcanbe

usedwhenfilingincome

taxreturns.Sincetopexecutives

areusuallyevaluatedbasedon

externalreportstoshareholders,

theymayfeelthatdecisions

shouldbebasedon

absorptioncostincome.ExternalReportingandIncomeAdvantagesofVariableCosting

andtheContributionApproachAdvantagesManagementfinds

itmoreuseful.ConsistentwithCVPanalysis.Netoperatingincomeiscloserto

netcashflow.Profitisnotaffectedby

changesininventories.Consistentwithstandard

costsandflexiblebudgeting.Impactoffixedcostsonprofitsemphasized.Easiertoestimateprofitabilit