There are two methods of determining product cost: the absorption costing method and the variable costing method.
- Explain how costs are calculated using both the absorption costing method and the variable costing method.
- Which method is required by the generally accepted accounting principles (GAAP)?
- Develop an example in columnar format that compares the two methods of cost calculation using the following table:
The unit product cost of the company is computed as follows:
|
|
Absorption costing |
Variable costing |
|
Direct materials |
|
|
|
Direct labor |
|
|
|
Variable manufacturing overhead |
|
|
|
Fixed manufacturing overhead |
|
|
|
Total unit cost |
|
|
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