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Discuss absorption, variable costing and throughput costing

Discuss what absorption, variables, and throughput costing are.
Determine when each would be used.
Provide an explanation and example of all three.

Solution Preview

Discuss what absorption, variables, and throughput costing are.

Absorption costing adds the variable and fixed costs into inventory and then expenses these when sold. In other words, all the materials, labor, supplies, facility costs and support for labor and materials are included in the "per unit" cost of inventory.

Variable costing adds only the variable costs into inventory and then expenses these when sold. In other words, all the materials, labor, supplies, indirect materials and variable costs of the factory (like utilities and batch costs) are included in the "per unit" cost of inventory. The fixed factory costs (building, property taxes, manager salary and so forth) are expensed in the month (even if all the inventory made that month was not sold).

Under variable costing the viewpoint is that the factory cost is a "capacity charge" and once the month is gone, you can't use the ...

Solution Summary

Your tutorial is 542 words plus a reference. An example computation for each method is shown, a definition is given for each, and a business motivation for adopting each method is discussed.

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