Variable and Absorption Costing Reconciliation Assignment Help

Posted on June 4, 2017

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Absorption Costing- for external reporting absorption costing must be used as per the generally accepted accounting principles. In absorption Costing normal manufacturing costs are included in inventory as these are considered as product costs. It is a method for aggregating the cost related with the process of production and allocating them to each product. Components of absorption costing given by Variable and Absorption Costing Reconciliation Assignment Help are- Direct materials, direct labor, variable manufacturing overhead, fixed manufacturing overhead. Activity based costing (ABC) can be used to apportion the various overhead cost for valuation of inventory under absorption costing method.
Variable Costing- Variable costing includes the variable costs that are related directly to production. Costs like direct materials, direct labor, variable manufacturing overhead are included in variable costing. Selling an administration cost and fixed manufacturing cost are treated as period expenses. It is a concept of managerial accounting. For external reporting, variable costs are generally not used. It is also known as marginal costing. It is used for internal reporting, decision making by using various models like CVP analysis, Break even analysis, Margin of safety etc. Clients looking for various topics regarding Variable and Absorption Costing Reconciliation can refer Variable and Absorption Costing Reconciliation Assignment Help.

Absorption VS Variable Costing

While comparing the income statements of absorption costing and variable costing, the following points should be noted, this is explained by Variable and Absorption Costing Reconciliation Assignment Help are
• Under Absorption costing, the fixed manufacturing costs are differed if the inventory is increased. The deferred cost are included in the income statement as a part of cost of goods sold when the products are taken of the inventory and sold.
• There is a difference in inventories under the two methods. Only variable manufacturing cost are included in inventory under variable costing while under absorption costing both variable and fixed manufacturing costs are included.
• Absorption costing is not suitable for CVP computations as under this there is no difference between fixed and variable cost while on the contrary variable costing method is useful in CVP computation. For further information, clients can refer Variable and Absorption Costing Reconciliation Assignment Help.

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• When there is no change in the inventory all of the current fixed manufacturing overhead will be shown in the income statements as an expense in both the methods but under absorption costing, it will be shown under cost of goods sold and in variable costing it will be shown as a period expense.
• When the inventories is increase the current fixed manufacturing cost will be deferred under absorption costing while under variable costing this will be treated as an expense as a result the net operating incoming under absorption costing will exceed the net operating income under variable costing.

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