Bài giảng môn Kế toán, kiểm toán - Chapter 8: Variable costing and the costs of quality and sustainability

Variable Costing and the Costs of Quality and SustainabilityChapter 8Copyright © 2014 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.Absorption and Variable Costing8-2Absorption and Variable CostingThe difference between absorption and variable costing is the treatment of fixed manufacturing overhead.8-3Absorption and Variable Costing Mellon Co. produces a single product with the following information available:8-4Absorption and Variable CostingUnit product cost is determined as follows:Selling and administrative expenses are always treated as period expenses and deducted from revenue.8-5Absorption Costing Income StatementsMellon Co. had no beginning inventory, produced 25,000 units, and sold 20,000 units this year at $30 each.8-6Absorption Costing Income StatementsMellon Co. had no beginning inventory, produced 25,000 units, and sold 20,000 units this year at $30 each.8-7Absorption Costing Income StatementsMellon Co. had no beginning inventory, produced 25,000 units, and sold 20,000 units this year at $30 each.8-8Variable Costing Income StatementsNow let’s look at variable costing by Mellon Co.8-9Variable Costing Income StatementsNow let’s look at variable costing by Mellon Co.We exclude thefixed manufacturingoverhead.8-10Variable Costing Income StatementsNow let’s look at variable costing by Mellon Co.8-11Reconciling Income Under Absorption and Variable Costing We can reconcile the difference between absorption and variable net income as follows:Fixed mfg. overhead $150,000 Units produced 25,000 = $6.00 per unit =8-12Cost-Volume-Profit AnalysisCVP includes all fixed costs to compute breakeven. Variable costing and CVP are consistent as both treat fixed costs as a lump sum.Absorption costing defers fixed costs into inventory.Absorption costing is inconsistent with CVP because absorption costing treats fixed costs on a per unit basis.8-13Mellon Co. Year 2 In its second year of operations, Mellon Co. started with an inventory of 5,000 units, produced 25,000 units, and sold 30,000 units at $30 each.8-14Mellon Co. Year 2Unit product cost is determined as follows:There has been nochange in Mellon’scost structure.8-15Mellon Co. Year 2Units in ending inventory from the previous period.8-16Mellon Co. Year 225,000 units produced in the current period.8-17Mellon Co. Year 2Excludes fixed manufacturing overhead.8-18SummaryIn the first period, production (25,000 units)was greater than sales (20,000).In the second period, production (25,000 units)was less than sales (30,000).8-19SummaryFor the two-year period, total absorptionincome and total variable income are the same.8-20AdvantagesManagement finds it easy to understand.Consistent withCVP analysis.Emphasizes contribution in short-run pricing decisions.Profit for period notaffected by changesin fixed mfg. overhead.Impact of fixedcosts on profitsemphasized.Evaluation of Variable Costing8-21AdvantagesConsistent with long-runpricing decisions that mustcover full cost.External reportingand income tax lawrequire absorption costing.Evaluation of Absorption CostingFixed manufacturing overhead istreated the same as the other productcosts, direct material and direct labor.8-22Costs of Assuring QualityGradeQuality8-23Grade refers to the extent of its capabilities in performing an intended purpose, in relation to other products with the same functional use. Quality of design refers to how well it is conceived or designed for its intended use. Quality of conformance refers to the extent to which a product meets the specification of its design.There are four types of quality costs.Prevention costs are the costs of preventing defects. Appraisal costs are the costs of determining whether defects exist. Internal failure costs are the costs of repairing defects found prior to product delivery. External failure costs are those costs incurred after product delivery.8-24What is the Optimal Levelof Product Quality? The optimal level of product quality is reached when: Prevention costs = Internal failure costs + Appraisal costs + External failure costs8-25Costs of Environmental SustainabilitySustainable development includes business activity that produces the goods and services needed in the present without limiting the ability of future generations to meet their meets.Environmental costs are the costs of dealing with environmental issues, such as BP’s costs in cleaning up the company’s spill in the Gulf of Mexico.Environmental cost management is the strategic implantation of systems for identifying, measuring, controlling, and reducing the private environmental costs borne by a company or other organization.8-26Environmental costs may be categorized in several ways:Private environmental costs are those borne by a company or individual. Social environmental costs are those borne by the public at large.Visible environmental costs are those that are known and clearly identified as tied to environmental issues. Hidden social environmental costs cannot be clearly tied to environmental issues.8-27Visible and hidden environmental costs may be further classified into one of three types..Monitoring costs include the costs of monitoring the regulatory environmental as well as monitoring the production process to determine if pollution is being generated.Abatement costs include costs to reduce or eliminate pollution.Remediation costs include on-site and off-site remediation costs. On-site remediation includes costs of reducing or preventing the discharge into the environment of pollutants that have been generated in the production process. Off-site remediation includes the costs of reducing or eliminating pollutants from the environment after they have been discharged.8-28