Assignment:
Here is the second part to this assignment. Just add to their answer. Keep in mine what they are answer too. Remember these questions when you are answering back to the other post."Explain the difference between variable and full costing.
Explain why income calculated under full absorption costing will be greater than income calculated under variable costing when production exceeds sales.
Explain how a manufacturing company can "bury" fixed manufacturing costs in ending inventory under full absorption costing.
If the fixed manufacturing overhead cost per unit under full costing is multiplied by the change in inventory between the beginning and ending of the period, what does the resulting number represent? Use and cite references. Three paragraphs.
The students post is as follows:The difference between full and variable costing is in the treatment of fixed manufacturing costs, and by extension, how useful each method is for estimating the effects of certain conditions, sales fluctuations, for example, will have. Full costing lumps fixed costs in with direct material, labor, and variable overhead in cost of goods sold, and is standard under GAAP. Unfortunately, those fixed costs weight the effects of changes in inventory as they do not fluctuate with production changes. Variable costing, on the other hand, treats fixed costs as expensed in the period in which they occur, independent of COGS.
From a practical standpoint, if production exceeds sales, a portion of the fixed manufacturing cost will not be expensed if full costing is used, as a portion of it will remain associated with the remaining inventory, meaning that income is not reduced.
The resulting number of multiplying fixed overhead per unit by change in inventory is the value of the fixed manufacturing costs factored into cost of goods sold for the period, under the full costing method."