{"id":91,"date":"2021-01-26T22:03:28","date_gmt":"2021-01-26T22:03:28","guid":{"rendered":"https:\/\/courses.lumenlearning.com\/wm-managerialaccounting\/?post_type=chapter&#038;p=91"},"modified":"2021-06-11T23:38:21","modified_gmt":"2021-06-11T23:38:21","slug":"full-absorption-costing","status":"publish","type":"chapter","link":"https:\/\/courses.lumenlearning.com\/suny-clinton-managerialaccounting\/chapter\/full-absorption-costing\/","title":{"raw":"Full Absorption Costing","rendered":"Full Absorption Costing"},"content":{"raw":"<div class=\"textbox learning-objectives\">\r\n<h3>Learning Outcomes<\/h3>\r\n<ul>\r\n \t<li>Distinguish between variable costing and full absorption costing<\/li>\r\n<\/ul>\r\n<\/div>\r\nLet\u2019s take another look at the variable costing model for BlankBooks, Inc. for a $1,530 target profit:\r\n<div align=\"left\">\r\n<table class=\"fin-table acctstatement fw\"><caption>BlankBooks, Inc.\r\nCVP Analysis - target profit\r\nFor the month ending July 31, 20XX<\/caption>\r\n<tbody>\r\n<tr>\r\n<th class=\"r\" scope=\"col\"><\/th>\r\n<th class=\"r\" scope=\"col\">Units<\/th>\r\n<th class=\"r\" scope=\"col\">$\/Unit<\/th>\r\n<th class=\"r\" scope=\"col\">Total<\/th>\r\n<\/tr>\r\n<\/tbody>\r\n<tbody>\r\n<tr>\r\n<td>Sales<\/td>\r\n<td class=\"r\">2,900<\/td>\r\n<td class=\"r\">$\u00a0\u00a0\u00a0\u00a0\u00a010.00<\/td>\r\n<td class=\"r\">$\u00a0\u00a0\u00a0\u00a0\u00a029,000.00<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Variable costs<\/td>\r\n<td class=\"r\">2,900<\/td>\r\n<td class=\"r\">$\u00a0\u00a0\u00a0\u00a0\u00a0\u00a08.30<\/td>\r\n<td class=\"r\">24,070.00<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Contribution Margin<\/td>\r\n<td><\/td>\r\n<td class=\"r\">$\u00a0\u00a0\u00a0\u00a0\u00a0\u00a01.70<\/td>\r\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>4,930.00<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Fixed costs<\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<td class=\"r\">\u00a0\u00a0\u00a0\u00a0\u00a0\u00a03,400.00<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Operating income<\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$\u00a0\u00a0\u00a0\u00a0\u00a0\u00a01,530.00<span class=\"u-sr-only\">Double line<\/span><\/td>\r\n<\/tr>\r\n<tr>\r\n<td><\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<tr>\r\n<td>CM ratio<\/td>\r\n<td><\/td>\r\n<td class=\"r\">17.00%<\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<\/div>\r\n&nbsp;\r\n\r\nRemember, we were assuming throughout this module that BlankBooks, Inc. uses a Just-in-Time inventory system, only manufacturing books as they are ordered and that there is no finished goods inventory on hand at the beginning or end of the period. Let\u2019s also assume that the company hit the sales goal exactly, producing and selling 2,900 books in July. Here is the income statement prepared by the financial accountants for external users using the GAAP-mandated full absorption costing method:\r\n<div align=\"left\">\r\n<table class=\"fin-table acctstatement fw\"><caption>BlankBooks, Inc.\r\nIncome Statement\r\nFor the month ending July 31, 20XX<\/caption>\r\n<thead>\r\n<tr class=\"u-sr-only\">\r\n<th scope=\"col\">Financial Categories<\/th>\r\n<th scope=\"col\">Raw Materials Costs<\/th>\r\n<th scope=\"col\">Work-in-Progress Costs<\/th>\r\n<th scope=\"col\">Finished Goods\/Overhead Costs<\/th>\r\n<th scope=\"col\">Financial Totals<\/th>\r\n<\/tr>\r\n<\/thead>\r\n<tbody>\r\n<tr>\r\n<td>Sales<\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<td class=\"r\">$\u00a0\u00a029,000.00<\/td>\r\n<\/tr>\r\n<tr>\r\n<td colspan=\"5\"><span class=\"u-sr-only\">Subcategory, <\/span><strong>Cost of Goods Sold<\/strong><\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Beginning raw materials<\/td>\r\n<td class=\"r\">$600.00<\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Raw materials purchased<\/td>\r\n<td class=\"r\">17,270.00<\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Ending raw materials<\/td>\r\n<td class=\"r\">(470.00)<\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Raw materials transferred to WIP<\/td>\r\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span><\/td>\r\n<td class=\"r\">$\u00a0 17,470.00<\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Beginning WIP<\/td>\r\n<td><\/td>\r\n<td class=\"r\">-<\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Direct Labor<\/td>\r\n<td><\/td>\r\n<td class=\"r\">5,800.00<\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Manufacturing overhead<\/td>\r\n<td><\/td>\r\n<td class=\"r\">1,200.00<\/td>\r\n<td>(FC)<\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Ending WIP<\/td>\r\n<td><\/td>\r\n<td class=\"r\">-<\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0WIP transferred to finished goods<\/td>\r\n<td><\/td>\r\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span><\/td>\r\n<td class=\"r\">$ \u00a0 24,400.00<\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Beginning finished goods<\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<td class=\"r\">-<\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Goods available for sale<\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>24,400.00<\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Ending finished goods<\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<td class=\"r\">-<\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Cost of Goods Sold<\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<td class=\"r\">$\u00a0\u00a024,400.00<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Gross Profit<\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>4,600.00<\/td>\r\n<\/tr>\r\n<tr>\r\n<td colspan=\"5\"><span class=\"u-sr-only\">Subcategory, <\/span><strong>Selling, general, and administrative costs<\/strong><\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Sales Salaries<\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<td class=\"r\">$\u00a0 \u00a0\u00a02,000.00<\/td>\r\n<td>(FC)<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Commissions<\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<td class=\"r\">870.00<\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Internet expenses<\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<td class=\"r\">200.00<\/td>\r\n<td>(FC)<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Total selling, general, and administrative costs<\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span><\/td>\r\n<td class=\"r\">3,070.00<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Operating income<\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>1,530.00<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Provision for income taxes<\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<td class=\"r\">21%<\/td>\r\n<td class=\"r\">321.30<\/td>\r\n<\/tr>\r\n<tr>\r\n<td><\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$\u00a0 1,208.70<span class=\"u-sr-only\">Double line<\/span><\/td>\r\n<\/tr>\r\n<tr>\r\n<td><\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<tr>\r\n<td><\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Per unit cost, full absorption<\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<td class=\"r line-double\">$ \u00a0 \u00a0 8.41<span class=\"u-sr-only\">Double line<\/span><\/td>\r\n<\/tr>\r\n<tr>\r\n<td><\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<\/div>\r\n&nbsp;\r\n\r\nLet\u2019s do a quick review of variable costing before we dive into absorption costing:\r\n\r\n<iframe src=\"\/\/plugin.3playmedia.com\/show?mf=6352535&amp;p3sdk_version=1.10.1&amp;p=20361&amp;pt=375&amp;video_id=kfJqYGQOLes&amp;video_target=tpm-plugin-p7lbu76q-kfJqYGQOLes\" width=\"800px\" height=\"450px\" frameborder=\"0\" marginwidth=\"0px\" marginheight=\"0px\"><\/iframe>\r\n\r\nYou can view the <a href=\"https:\/\/oerfiles.s3.us-west-2.amazonaws.com\/Managerial+Accounting\/Transcripts\/VariableCostingTheVariableCostingMethod_transcript.txt\" target=\"_blank\" rel=\"noopener\">transcript for \"Variable Costing (the Variable Costing method in Managerial Accounting)\" here (opens in new window)<\/a>.\r\n\r\nWhen all units manufactured (2,900) are sold (2,900), operating income under absorption costing is the same as it is under variable costing, $1,530.00. Under both costing methods, $3,400.00 of fixed factory overhead costs is deducted to arrive at operating income. It just appears in two different line items.\r\n<ul>\r\n \t<li style=\"font-weight: 400;\" aria-level=\"1\">On the variable costing statement, the $3,400.00 in fixed costs follows the contribution margin line.<\/li>\r\n \t<li style=\"font-weight: 400;\" aria-level=\"1\">Under absorption costing, the $3,400.00 is split between cost of goods sold and SGA based on whether the amount is a product cost or a period cost (look for the FC).<\/li>\r\n<\/ul>\r\nUnder absorption costing, the per-unit cost of $8.41 is determined by dividing cost of goods available for sale (goods manufactured) by number of units sold:\r\n<p style=\"padding-left: 30px;\">$24,400.00 \/ 2,900 = 8.41379310... rounded to the nearest penny = 8.41<\/p>\r\nHere is a more in-depth illustration of absorption costing:\r\n\r\n<iframe src=\"\/\/plugin.3playmedia.com\/show?mf=6352536&amp;p3sdk_version=1.10.1&amp;p=20361&amp;pt=375&amp;video_id=OY1flllyjfc&amp;video_target=tpm-plugin-8y47llas-OY1flllyjfc\" width=\"800px\" height=\"450px\" frameborder=\"0\" marginwidth=\"0px\" marginheight=\"0px\"><\/iframe>\r\n\r\nYou can view the <a href=\"https:\/\/oerfiles.s3.us-west-2.amazonaws.com\/Managerial+Accounting\/Transcripts\/AbsorptionCostingExample_transcript.txt\" target=\"_blank\" rel=\"noopener\">transcript for \"Absorption Costing Example\" here (opens in new window)<\/a>.\r\n\r\nBefore we go on to compare results of operations under the two systems, let\u2019s check your understanding of the concept of absorption costing.\r\n<div class=\"textbox tryit\">\r\n<h3>Practice Question<\/h3>\r\n[ohm_question hide_question_numbers=1]217769[\/ohm_question]\r\n\r\n<\/div>","rendered":"<div class=\"textbox learning-objectives\">\n<h3>Learning Outcomes<\/h3>\n<ul>\n<li>Distinguish between variable costing and full absorption costing<\/li>\n<\/ul>\n<\/div>\n<p>Let\u2019s take another look at the variable costing model for BlankBooks, Inc. for a $1,530 target profit:<\/p>\n<div style=\"text-align: left;\">\n<table class=\"fin-table acctstatement fw\">\n<caption>BlankBooks, Inc.<br \/>\nCVP Analysis &#8211; target profit<br \/>\nFor the month ending July 31, 20XX<\/caption>\n<tbody>\n<tr>\n<th class=\"r\" scope=\"col\"><\/th>\n<th class=\"r\" scope=\"col\">Units<\/th>\n<th class=\"r\" scope=\"col\">$\/Unit<\/th>\n<th class=\"r\" scope=\"col\">Total<\/th>\n<\/tr>\n<\/tbody>\n<tbody>\n<tr>\n<td>Sales<\/td>\n<td class=\"r\">2,900<\/td>\n<td class=\"r\">$\u00a0\u00a0\u00a0\u00a0\u00a010.00<\/td>\n<td class=\"r\">$\u00a0\u00a0\u00a0\u00a0\u00a029,000.00<\/td>\n<\/tr>\n<tr>\n<td>Variable costs<\/td>\n<td class=\"r\">2,900<\/td>\n<td class=\"r\">$\u00a0\u00a0\u00a0\u00a0\u00a0\u00a08.30<\/td>\n<td class=\"r\">24,070.00<\/td>\n<\/tr>\n<tr>\n<td>Contribution Margin<\/td>\n<td><\/td>\n<td class=\"r\">$\u00a0\u00a0\u00a0\u00a0\u00a0\u00a01.70<\/td>\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>4,930.00<\/td>\n<\/tr>\n<tr>\n<td>Fixed costs<\/td>\n<td><\/td>\n<td><\/td>\n<td class=\"r\">\u00a0\u00a0\u00a0\u00a0\u00a0\u00a03,400.00<\/td>\n<\/tr>\n<tr>\n<td>Operating income<\/td>\n<td><\/td>\n<td><\/td>\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$\u00a0\u00a0\u00a0\u00a0\u00a0\u00a01,530.00<span class=\"u-sr-only\">Double line<\/span><\/td>\n<\/tr>\n<tr>\n<td><\/td>\n<td><\/td>\n<td><\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<td>CM ratio<\/td>\n<td><\/td>\n<td class=\"r\">17.00%<\/td>\n<td><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/div>\n<p>&nbsp;<\/p>\n<p>Remember, we were assuming throughout this module that BlankBooks, Inc. uses a Just-in-Time inventory system, only manufacturing books as they are ordered and that there is no finished goods inventory on hand at the beginning or end of the period. Let\u2019s also assume that the company hit the sales goal exactly, producing and selling 2,900 books in July. Here is the income statement prepared by the financial accountants for external users using the GAAP-mandated full absorption costing method:<\/p>\n<div style=\"text-align: left;\">\n<table class=\"fin-table acctstatement fw\">\n<caption>BlankBooks, Inc.<br \/>\nIncome Statement<br \/>\nFor the month ending July 31, 20XX<\/caption>\n<thead>\n<tr class=\"u-sr-only\">\n<th scope=\"col\">Financial Categories<\/th>\n<th scope=\"col\">Raw Materials Costs<\/th>\n<th scope=\"col\">Work-in-Progress Costs<\/th>\n<th scope=\"col\">Finished Goods\/Overhead Costs<\/th>\n<th scope=\"col\">Financial Totals<\/th>\n<\/tr>\n<\/thead>\n<tbody>\n<tr>\n<td>Sales<\/td>\n<td><\/td>\n<td><\/td>\n<td><\/td>\n<td class=\"r\">$\u00a0\u00a029,000.00<\/td>\n<\/tr>\n<tr>\n<td colspan=\"5\"><span class=\"u-sr-only\">Subcategory, <\/span><strong>Cost of Goods Sold<\/strong><\/td>\n<\/tr>\n<tr>\n<td>\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Beginning raw materials<\/td>\n<td class=\"r\">$600.00<\/td>\n<td><\/td>\n<td><\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<td>\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Raw materials purchased<\/td>\n<td class=\"r\">17,270.00<\/td>\n<td><\/td>\n<td><\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<td>\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Ending raw materials<\/td>\n<td class=\"r\">(470.00)<\/td>\n<td><\/td>\n<td><\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<td>\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Raw materials transferred to WIP<\/td>\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span><\/td>\n<td class=\"r\">$\u00a0 17,470.00<\/td>\n<td><\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<td>\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Beginning WIP<\/td>\n<td><\/td>\n<td class=\"r\">&#8211;<\/td>\n<td><\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<td>\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Direct Labor<\/td>\n<td><\/td>\n<td class=\"r\">5,800.00<\/td>\n<td><\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<td>\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Manufacturing overhead<\/td>\n<td><\/td>\n<td class=\"r\">1,200.00<\/td>\n<td>(FC)<\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<td>\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Ending WIP<\/td>\n<td><\/td>\n<td class=\"r\">&#8211;<\/td>\n<td><\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<td>\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0WIP transferred to finished goods<\/td>\n<td><\/td>\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span><\/td>\n<td class=\"r\">$ \u00a0 24,400.00<\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<td>\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Beginning finished goods<\/td>\n<td><\/td>\n<td><\/td>\n<td class=\"r\">&#8211;<\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<td>\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Goods available for sale<\/td>\n<td><\/td>\n<td><\/td>\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>24,400.00<\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<td>\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Ending finished goods<\/td>\n<td><\/td>\n<td><\/td>\n<td class=\"r\">&#8211;<\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<td>\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Cost of Goods Sold<\/td>\n<td><\/td>\n<td><\/td>\n<td><\/td>\n<td class=\"r\">$\u00a0\u00a024,400.00<\/td>\n<\/tr>\n<tr>\n<td>Gross Profit<\/td>\n<td><\/td>\n<td><\/td>\n<td><\/td>\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>4,600.00<\/td>\n<\/tr>\n<tr>\n<td colspan=\"5\"><span class=\"u-sr-only\">Subcategory, <\/span><strong>Selling, general, and administrative costs<\/strong><\/td>\n<\/tr>\n<tr>\n<td>\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Sales Salaries<\/td>\n<td><\/td>\n<td><\/td>\n<td class=\"r\">$\u00a0 \u00a0\u00a02,000.00<\/td>\n<td>(FC)<\/td>\n<\/tr>\n<tr>\n<td>\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Commissions<\/td>\n<td><\/td>\n<td><\/td>\n<td class=\"r\">870.00<\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<td>\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Internet expenses<\/td>\n<td><\/td>\n<td><\/td>\n<td class=\"r\">200.00<\/td>\n<td>(FC)<\/td>\n<\/tr>\n<tr>\n<td>Total selling, general, and administrative costs<\/td>\n<td><\/td>\n<td><\/td>\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span><\/td>\n<td class=\"r\">3,070.00<\/td>\n<\/tr>\n<tr>\n<td>Operating income<\/td>\n<td><\/td>\n<td><\/td>\n<td><\/td>\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>1,530.00<\/td>\n<\/tr>\n<tr>\n<td>Provision for income taxes<\/td>\n<td><\/td>\n<td><\/td>\n<td class=\"r\">21%<\/td>\n<td class=\"r\">321.30<\/td>\n<\/tr>\n<tr>\n<td><\/td>\n<td><\/td>\n<td><\/td>\n<td><\/td>\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$\u00a0 1,208.70<span class=\"u-sr-only\">Double line<\/span><\/td>\n<\/tr>\n<tr>\n<td><\/td>\n<td><\/td>\n<td><\/td>\n<td><\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<td><\/td>\n<td><\/td>\n<td><\/td>\n<td><\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<td>Per unit cost, full absorption<\/td>\n<td><\/td>\n<td><\/td>\n<td><\/td>\n<td class=\"r line-double\">$ \u00a0 \u00a0 8.41<span class=\"u-sr-only\">Double line<\/span><\/td>\n<\/tr>\n<tr>\n<td><\/td>\n<td><\/td>\n<td><\/td>\n<td><\/td>\n<td><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/div>\n<p>&nbsp;<\/p>\n<p>Let\u2019s do a quick review of variable costing before we dive into absorption costing:<\/p>\n<p><iframe loading=\"lazy\" src=\"\/\/plugin.3playmedia.com\/show?mf=6352535&amp;p3sdk_version=1.10.1&amp;p=20361&amp;pt=375&amp;video_id=kfJqYGQOLes&amp;video_target=tpm-plugin-p7lbu76q-kfJqYGQOLes\" width=\"800px\" height=\"450px\" frameborder=\"0\" marginwidth=\"0px\" marginheight=\"0px\"><\/iframe><\/p>\n<p>You can view the <a href=\"https:\/\/oerfiles.s3.us-west-2.amazonaws.com\/Managerial+Accounting\/Transcripts\/VariableCostingTheVariableCostingMethod_transcript.txt\" target=\"_blank\" rel=\"noopener\">transcript for &#8220;Variable Costing (the Variable Costing method in Managerial Accounting)&#8221; here (opens in new window)<\/a>.<\/p>\n<p>When all units manufactured (2,900) are sold (2,900), operating income under absorption costing is the same as it is under variable costing, $1,530.00. Under both costing methods, $3,400.00 of fixed factory overhead costs is deducted to arrive at operating income. It just appears in two different line items.<\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\">On the variable costing statement, the $3,400.00 in fixed costs follows the contribution margin line.<\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\">Under absorption costing, the $3,400.00 is split between cost of goods sold and SGA based on whether the amount is a product cost or a period cost (look for the FC).<\/li>\n<\/ul>\n<p>Under absorption costing, the per-unit cost of $8.41 is determined by dividing cost of goods available for sale (goods manufactured) by number of units sold:<\/p>\n<p style=\"padding-left: 30px;\">$24,400.00 \/ 2,900 = 8.41379310&#8230; rounded to the nearest penny = 8.41<\/p>\n<p>Here is a more in-depth illustration of absorption costing:<\/p>\n<p><iframe loading=\"lazy\" src=\"\/\/plugin.3playmedia.com\/show?mf=6352536&amp;p3sdk_version=1.10.1&amp;p=20361&amp;pt=375&amp;video_id=OY1flllyjfc&amp;video_target=tpm-plugin-8y47llas-OY1flllyjfc\" width=\"800px\" height=\"450px\" frameborder=\"0\" marginwidth=\"0px\" marginheight=\"0px\"><\/iframe><\/p>\n<p>You can view the <a href=\"https:\/\/oerfiles.s3.us-west-2.amazonaws.com\/Managerial+Accounting\/Transcripts\/AbsorptionCostingExample_transcript.txt\" target=\"_blank\" rel=\"noopener\">transcript for &#8220;Absorption Costing Example&#8221; here (opens in new window)<\/a>.<\/p>\n<p>Before we go on to compare results of operations under the two systems, let\u2019s check your understanding of the concept of absorption costing.<\/p>\n<div class=\"textbox tryit\">\n<h3>Practice Question<\/h3>\n<p><iframe loading=\"lazy\" id=\"ohm217769\" class=\"resizable\" src=\"https:\/\/ohm.lumenlearning.com\/multiembedq.php?id=217769&theme=oea&iframe_resize_id=ohm217769\" width=\"100%\" height=\"150\"><\/iframe><\/p>\n<\/div>\n\n\t\t\t <section class=\"citations-section\" role=\"contentinfo\">\n\t\t\t <h3>Candela Citations<\/h3>\n\t\t\t\t\t <div>\n\t\t\t\t\t\t <div id=\"citation-list-91\">\n\t\t\t\t\t\t\t <div class=\"licensing\"><div class=\"license-attribution-dropdown-subheading\">CC licensed content, Original<\/div><ul class=\"citation-list\"><li>Full Absorption Costing. <strong>Authored by<\/strong>: Joseph Cooke. <strong>Provided by<\/strong>: Lumen Learning. <strong>License<\/strong>: <em><a target=\"_blank\" rel=\"license\" href=\"https:\/\/creativecommons.org\/licenses\/by\/4.0\/\">CC BY: Attribution<\/a><\/em><\/li><\/ul><div class=\"license-attribution-dropdown-subheading\">All rights reserved content<\/div><ul class=\"citation-list\"><li>Absorption Costing Example. <strong>Authored by<\/strong>: Edspira. <strong>Located at<\/strong>: <a target=\"_blank\" href=\"https:\/\/youtu.be\/OY1flllyjfc\">https:\/\/youtu.be\/OY1flllyjfc<\/a>. <strong>License<\/strong>: <em>All Rights Reserved<\/em>. <strong>License Terms<\/strong>: Standard YouTube License<\/li><li>Variable Costing Method. <strong>Authored by<\/strong>: Edspira. <strong>Located at<\/strong>: <a target=\"_blank\" href=\"https:\/\/youtu.be\/kfJqYGQOLes\">https:\/\/youtu.be\/kfJqYGQOLes<\/a>. <strong>License<\/strong>: <em>All Rights Reserved<\/em>. <strong>License Terms<\/strong>: Standard YouTube License<\/li><\/ul><\/div>\n\t\t\t\t\t\t <\/div>\n\t\t\t\t\t <\/div>\n\t\t\t <\/section>","protected":false},"author":364389,"menu_order":13,"template":"","meta":{"_candela_citation":"[{\"type\":\"original\",\"description\":\"Full Absorption Costing\",\"author\":\"Joseph Cooke\",\"organization\":\"Lumen Learning\",\"url\":\"\",\"project\":\"\",\"license\":\"cc-by\",\"license_terms\":\"\"},{\"type\":\"copyrighted_video\",\"description\":\"Absorption Costing Example\",\"author\":\"Edspira\",\"organization\":\"\",\"url\":\"https:\/\/youtu.be\/OY1flllyjfc\",\"project\":\"\",\"license\":\"arr\",\"license_terms\":\"Standard YouTube License\"},{\"type\":\"copyrighted_video\",\"description\":\"Variable Costing Method\",\"author\":\"Edspira\",\"organization\":\"\",\"url\":\"https:\/\/youtu.be\/kfJqYGQOLes\",\"project\":\"\",\"license\":\"arr\",\"license_terms\":\"Standard YouTube License\"}]","CANDELA_OUTCOMES_GUID":"","pb_show_title":"on","pb_short_title":"","pb_subtitle":"","pb_authors":[],"pb_section_license":""},"chapter-type":[],"contributor":[],"license":[],"class_list":["post-91","chapter","type-chapter","status-publish","hentry"],"part":23,"_links":{"self":[{"href":"https:\/\/courses.lumenlearning.com\/suny-clinton-managerialaccounting\/wp-json\/pressbooks\/v2\/chapters\/91","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/courses.lumenlearning.com\/suny-clinton-managerialaccounting\/wp-json\/pressbooks\/v2\/chapters"}],"about":[{"href":"https:\/\/courses.lumenlearning.com\/suny-clinton-managerialaccounting\/wp-json\/wp\/v2\/types\/chapter"}],"author":[{"embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/suny-clinton-managerialaccounting\/wp-json\/wp\/v2\/users\/364389"}],"version-history":[{"count":14,"href":"https:\/\/courses.lumenlearning.com\/suny-clinton-managerialaccounting\/wp-json\/pressbooks\/v2\/chapters\/91\/revisions"}],"predecessor-version":[{"id":2253,"href":"https:\/\/courses.lumenlearning.com\/suny-clinton-managerialaccounting\/wp-json\/pressbooks\/v2\/chapters\/91\/revisions\/2253"}],"part":[{"href":"https:\/\/courses.lumenlearning.com\/suny-clinton-managerialaccounting\/wp-json\/pressbooks\/v2\/parts\/23"}],"metadata":[{"href":"https:\/\/courses.lumenlearning.com\/suny-clinton-managerialaccounting\/wp-json\/pressbooks\/v2\/chapters\/91\/metadata\/"}],"wp:attachment":[{"href":"https:\/\/courses.lumenlearning.com\/suny-clinton-managerialaccounting\/wp-json\/wp\/v2\/media?parent=91"}],"wp:term":[{"taxonomy":"chapter-type","embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/suny-clinton-managerialaccounting\/wp-json\/pressbooks\/v2\/chapter-type?post=91"},{"taxonomy":"contributor","embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/suny-clinton-managerialaccounting\/wp-json\/wp\/v2\/contributor?post=91"},{"taxonomy":"license","embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/suny-clinton-managerialaccounting\/wp-json\/wp\/v2\/license?post=91"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}