ACCT 102 – Fundamentals of Acct. II

Chapter 19– Schmidt

Variable versus Absorption Costing

ABC Surfboard Company

We make and sell Surfboards.

In the past, the company has produced #10,000 boards.  The following information has been gathered from the financial records:

Selling Price           $50 per board                       

Cost of product:

  

Direct Materials	$ 12 Per Board
Direct Labor	$ 7   Per Board
Variable OH	$ 6   Per Board
Fixed FOH	$ 100,000
Variable Selling Exp.	$ 5 per unit
Fixed Selling Exp.	$ 50,000  (or $5 per board)

 ·        If we produce and sell #10,000 boards, what will the income statement look like under traditional (Absorption) Costing and Variable Costing techniques.

 ·        Same facts, except that we make #10,000 and we sell #8,000

 Why the difference in the two results under the second scenario?  You should understand what caused this to happen.