Excel Applications for Accounting Principles
Quiz 19 :
Variable Costing Varcost
Review the worksheet indicated in problem. Prepare a variable costing income statement and an absorption costing income statement for this company for the month of January based on the information in this worksheet. The unedited worksheet would look like the one shown below. The unedited worksheet is pasted above.
Open the VARCOST file as indicated in problem. Enter appropriate formulas where indicated in the worksheet using cell references to fill the worksheet and for auto updating of worksheet. After entering all the formulas, the worksheet will provide results and look like as the one shown below. From the above image, it is evident that the operating income under Absorption costing is higher as compared to Variable costing.
Reasons for difference in amount of operating income under variable costing and absorption costing are explained below. • The income statement prepared under absorption costing will result in a different operating income than the income statement prepared under variable costing. Using absorption costing, a portion of the fixed manufacturing costs is deferred to the next period. The company determines how much fixed manufacturing overhead would be assigned as per unit. The number of units remaining in inventory multiplied by the assigned per unit manufacturing cost will deferred to the next period. • In variable costing, all costs incurred during the period are considerable as the expenses into the income statement. Because the total fixed manufacturing costs remain in cost of goods sold, this result in a smaller operating income than under the absorption costing method. That's why operating income is different under both variable costing and absorption costing.