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ACC 561 Week 5 Costing methods paper

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ACC 561 Week 5 Costing methods paper
In this case, would it be better to use the variable or absorption costing method, and why?
What are the benefits of the two methods?
Which method would lead to the best decision when a competitor is submitting a lower
bid for your product?
Absorption Costing vs Variable Costing
In comparison to absorption costing which is used for external
purpopses and which is required by accounting standards, variable
costing is a costing tool that is used for internal decision-making
purposes.
The logic of variable costing differs from absorption costing as it assigns
only variable costs to inventory and cost of goods sold. When using
variable costing your product costs would therefore consist of Direct
Material, Direct Labor, and Variable Manufacturing Overhead. With
variable costing variable SG& A expenses, and fixed SG&A expenses
are classified as period expenses new is that also fixed manuf. OH
costs are assigned to period costs.
Since variable costing and absorption costing classify costs differently,
the per unit costs that are calculated under each system differ. On the
slide you can see an example of a situation where product costs under
absorption and variable costing are calculated. When taking a look at
absorption costing and variable costing you notice that the per unit cost
differs by $4. Let’s take a look how the different prices are calculated.
For absorption costing you take direct material for $5 into account, you
add $4 for direct labor, then you add variable manuf. OH for $1, then you
take fixed MOH per year which are $20,000 and divide them by sells, in

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