Total absorption costing
Total absorption costing (TAC) is a method of Accounting cost which entails the full cost of manufacturing or providing a service. TAC includes not just the costs of materials and labour, but also of all manufacturing overheads (whether ‘fixed’ or ‘variable’).The cost of each cost center can be direct or indirect cost. The direct cost can be easily identified with individual cost centers. whereas the indirect cost can't be easily identified with the cost center. The distribution of overhead among the departments is called apportionment.
Variable Costing
Variable Costing is a managerial accounting cost concept. Under this method,manufacturing overhead is incurred in the period that a product is produced. This addresses the issue of absorption costing that allows income to rise as productionrises. Under an absorption cost method, management can push forward costs to the next period when products are sold. This artificially inflates profits in the period of production by incurring less cost than would be incurred under a variable costing system.[1] Variable costing is generally not used for external reporting purposes. Under the Tax Reform Act of 1986, income statements must use absorption costing to comply with GAAP.
Variable costing - A costing method that includes only variable manufacturing costs--direct materials, direct labor, and variable manufacturing overhead--in unit product costs. [2]
No comments:
Post a Comment