Full Absorption Costing vs. Variable Costing Variable cost Manufacturing Costs Fixed cost per unit http://youtu.be/grojpa0-pi4 Direct material 2$ YouTube Video: 15 Direct labor Manufacturing overhead 500,000 4 $ 200,000 Selling expense Administrative expense 75,000 Beginning Inventory (units) Units produced 24,000 All fixed costs are treated Units sold 20,000 as period expenses. Selling price per unit 2$ 90 GAAP - Full Absorption Variable Costing Total manufacturing cost Average cost per unit Ending inventory (units) Total variable manlfacturing cost Average cost per unit Ending inventory (units) Ending inventory (value) Cost of goods sold Total cost accounted for Ending inventory (value) Cost of goods sold (variable) Total cost accounted for Income Statement Income Statement Sales Sales Cost of goods sold Gross margin Cost of goods sold Gross margin Selling expense Admin expense Selling expense Admin expense Net operating income Net operating income Under full absorption accounting what happens to NOl as production increases? Why? Average cost per unit Average cost per Units NOI Units unit NOI Produced Produced 20,000 20,000 21,000 21,000 22,000 22,000 23,000 23,000 24,000 24,000 25,000 25,000 26,000 26,000 27,000 27,000 28,000 28,000 29,000 29,000 30,000 30,000