ACCT 210 1st Edition Lecture 8 Outline of Last Lecture I. Review of previous materialII. PORIII. Recording overheadOutline of Current Lecture I. Variable costingII. Absorption costingIII. P=SCurrent Lecture1. Variable Costinga. Product costs include:i. Direct laborii. Direct materialsiii. Variable manufacturing overheadb. Period costs include:i. Fixed manufacturing overhead (on income statement)ii. Selling costsiii. Administrative costsc. Variable Costing Income StatementSales(less) Variable costs (VC)= Contribution margin (CM)(less) Fixed costs (FC)= Net income (NI)2. Absorption costinga. Product costs include:i. Direct laborii. Direct materialiii. Variable manufacturing overheadiv. Fixed manufacturing overhead (on balance sheet)b. Period costs includei. Selling costsii. Administrative Costsc. Absorption Costing Income StatementSales (S)(less) Cost of goods sold (COGS)= Gross Margin (GM)(less) Selling, general & administrative expenses (SG&A)= Net income (NI)3. P=Sa. Number of units produced = number of units soldb. Example Unit sales = 400,000 at $5/unitProduction is 400,000Direct materials (DM), Direct labor (DL) & Variable manufacturing overhead (VMOH) = 1.25/unitVC of SG&A = $1/unitFixed MOH = $100,000Fixed SG&A = $250,000i. Calculate per unit product cost(100,000 ÷ units produced)Absorption VariableDM, DL & VMOHFMOH (absorption only)Unit Cost$1.25 0.25 1.50$1.25------ 1.25ii. Remember:SG&A expenses are always period costs, and can be fixed or variableiii. Variable cost income statementSales- VC VMOH SG&ACM- FC FMOH SG&ANI$5.00 x 400,0001.25 x 400,0001.00 x 400,000100,000250,000= $2,000,000= 500,000= 400,0001,100,000750,000iv. Absorption cost income statementSales- COGS DM, DL, VMOH SG&AGM- SG&A VC of SG&A FC of SG&ANI1.25 x 400,0000.25 x 400,0001.00 x 400,000250,000$2,000,000= 500,000= 100,0001,400,000=
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