1. TOPIC FOCUS ON VARIABLE AND ABSORPTION COSTING

2. TF 3 WHAT IS VARIABLE COSTING? ► Product costing approach that includes only variable costs Direct materials Direct labor Variable overhead ► Fixed overhead is not considered a product cost but is treated as a period cost and expensed as incurred

3. TF 3 COMPARISON

4. TF 3 JERSEY FABRIC PRODUCT COSTS Absorption CostingVariable Costing Direct Materials$1.26 Direct Labor 0.54 Variable Overhead 0.30 Fixed Overhead 1.50 Total cost per yard$3.60$2.10

5. TF 3 UNITS SOLD = UNITS PRODUCED Absorption CostingVariable Costing

6. TF 3 UNITS SOLD < UNITS PRODUCED Absorption CostingVariable Costing

7. TF 3 UNITS SOLD > UNITS PRODUCED Absorption CostingVariable Costing

8. TF 3 EFFECTS ON OPERATING INCOME