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PowerPoint Authors: Susan Coomer Galbreath, Ph.D., CPA Jon A. Booker, Ph.D., CPA, CIA Cynthia J. Rooney, Ph.D., CPA
Super-variable Costing
Appendix 5A
Helen (H) - CHAPTER 5, APPENDIX 5A No changes or observations are required for this chapter appendix.
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Learning Objective 6
(Appendix 5A)
Prepare an income statement using super-variable costing and reconcile this approach with variable costing.
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Overview of Variable and Super-variable Costing
Variable
Costing
Super-
variable
Costing
Super-variable costing classifies all direct labor and manufacturing overhead costs as fixed period costs and only direct materials as a variable product cost. To simplify, in this appendix we also assume that selling and administrative expenses are entirely fixed.
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Direct Materials
Direct Labor
Fixed Manufacturing Overhead
Fixed Selling and Administrative Expenses
Product
Costs
Period
Costs
Product
Cost
Period
Costs
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Unit Cost Computations
Harvey Company produces a single product with the following information available:
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| Number of units produced annually | 25,000 | ||
| Variable costs per unit: | |||
| Direct materials | $ 7 | ||
| Fixed costs per year: | |||
| Direct labor | $ 75,000 | ||
| Manufacturing overhead | $ 150,000 | ||
| Selling & administrative expenses | $ 100,000 |
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Unit product cost is determined as follows:
Unit Cost Computations
Under super-variable costing, only the direct material costs are included in product costs. Under variable costing, direct materials and direct labor are included when determining unit product cost.
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| Super-variable Costing | Variable Costing | |||
| Direct materials | $ 7 | $ 7 | ||
| Direct Labor | ||||
| ($75,000 ÷ 25,000 units) | 3 | |||
| Unit product cost | $ 7 | $ 10 |
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Let’s assume the following additional information
for Harvey Company.
- 20,000 units were sold during the year at a price
of $30 each. - There is no beginning inventory.
Now, let’s compute net operating
income using both super-variable
and variable costing.
Variable and Super-variable Costing Income Statements
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Super-variable Costing Contribution Format Income Statement
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Direct material costs only.
All direct labor
costs are expensed.
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| Super-variable Costing | ||||
| Sales (20,000 × $30) | $ 600,000 | |||
| Less variable expenses: | ||||
| Direct material (20,000 × $7) | 140,000 | |||
| Contribution margin | 460,000 | |||
| Less fixed expenses: | ||||
| Direct labor | $ 75,000 | |||
| Fixed manufacturing overhead | 150,000 | |||
| Fixed selling & administrative expenses | 100,000 | 325,000 | ||
| Net operating income | $ 135,000 |
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Direct labor cost deferred in inventory
is 5,000 units × $3 = $15,000.
Variable Costing Contribution Format Income Statement
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Direct material and direct labor costs.
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| Variable Costing | ||||
| Sales (20,000 × $30) | $ 600,000 | |||
| Less variable expenses: | ||||
| Variable cost of goods sold (20,000 × $10) | 200,000 | |||
| Contribution margin | 400,000 | |||
| Less fixed expenses: | ||||
| Fixed manufacturing overhead | $ 150,000 | |||
| Fixed selling & administrative expenses | 100,000 | 250,000 | ||
| Net operating income | $ 150,000 |
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Comparing the Two Methods
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| Cost of Goods Sold | Ending Inventory | Period Expense | Total | |||||
| Variable costing | ||||||||
| Direct material | $ 140,000 | $ 35,000 | $ - 0 | $ 175,000 | ||||
| Direct labor | 60,000 | 15,000 | 75,000 | |||||
| $ 200,000 | $ 50,000 | $ - 0 | $ 250,000 | |||||
| Super-variable costing | ||||||||
| Direct Material | $ 140,000 | $ 35,000 | $ - 0 | $ 175,000 | ||||
| Direct labor | - 0 | - 0 | 75,000 | |||||
| Fixed mfg. costs | - 0 | - 0 | 150,000 | 225,000 | ||||
| $ 140,000 | $ 35,000 | $ 225,000 | $ 400,000 |
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We can reconcile the difference between
super-variable and variable income as follows:
Comparing the Two Methods
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Direct labor $75,000
Units produced 25,000 units
= = $3 per unit
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| Super-variable costing net operating income | $ 135,000 | |
| Add: Direct labor costs | ||
| deferred in inventory | ||
| (5,000 units × $3 per unit) | 15,000 | |
| Variable costing net operating income | $ 150,000 |
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Extended Comparisons of Income Data Harvey Company – Year Two
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Sheet1
| Number of units produced | 25,000 | ||
| Number of units sold | 30,000 | ||
| Units in beginning inventory | 5,000 | ||
| Unit sales price | $ 30 | ||
| Variable costs per unit: | |||
| Direct materials | $ 7 | ||
| Fixed costs per year: | |||
| Direct labor | $ 75,000 | ||
| Manufacturing overhead | $ 150,000 | ||
| Selling & administrative | |||
| expenses | $ 100,000 |
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Since the variable costs per unit, total fixed costs, and the number of units produced remained unchanged, the unit cost computations also remain unchanged.
Unit Cost Computations
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| Super-variable Costing | Variable Costing | |||
| Direct materials | $ 7 | $ 7 | ||
| Direct Labor | ||||
| ($75,000 ÷ 25,000 units) | 3 | |||
| Unit product cost | $ 7 | $ 10 |
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Super-variable Costing Contribution Format Income Statement
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Direct material costs only.
All direct labor
costs are expensed.
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Sheet1
| Super-variable Costing | ||||
| Sales (30,000 × $30) | $ 900,000 | |||
| Less variable expenses: | ||||
| Direct material (30,000 × $7) | 210,000 | |||
| Contribution margin | 690,000 | |||
| Less fixed expenses: | ||||
| Direct labor | $ 75,000 | |||
| Fixed manufacturing overhead | 150,000 | |||
| Fixed selling & administrative expenses | 100,000 | 325,000 | ||
| Net operating income | $ 365,000 |
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Variable Costing Contribution Format Income Statement
Direct labor cost released from inventory
is 5,000 units × $3 = $15,000.
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Direct material and direct labor costs.
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| Variable Costing | ||||
| Sales (30,000 × $30) | $ 900,000 | |||
| Less variable expenses: | ||||
| Variable cost of goods sold (30,000 × $10) | 300,000 | |||
| Contribution margin | 600,000 | |||
| Less fixed expenses: | ||||
| Fixed manufacturing overhead | $ 150,000 | |||
| Fixed selling & administrative expenses | 100,000 | 250,000 | ||
| Net operating income | $ 350,000 |
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Comparing the Two Methods
We can reconcile the difference between
super-variable and variable income as follows:
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Direct labor $75,000
Units produced 25,000 units
= = $3 per unit
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Sheet1
| Super-variable costing net operating income | $ 365,000 | |
| Deduct: Direct labor costs | ||
| released from inventory | ||
| (5,000 units × $3 per unit) | 15,000 | |
| Variable costing net operating income | $ 350,000 |
5A-*
Comparing the Two Methods
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| Costing Method | 1st Period | 2nd Period | Total | |||||
| Super-variable | $ 135,000 | $ 365,000 | $ 500,000 | |||||
| Variable | 150,000 | 350,000 | 500,000 |
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End of Appendix 5A
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Number of units produced annually25,000
Variable costs per unit:
Direct materials7$
Fixed costs per year:
Direct labor75,000$
Manufacturing overhead150,000$
Selling & administrative expenses100,000$
Super-
variable
Costing
Variable
Costing
Direct materials7$ 7$
Direct Labor
($75,000 ÷ 25,000 units)3
Unit product cost7$ 10$
Super-variable Costing
Sales (20,000 × $30)600,000$
Less variable expenses:
Direct material (20,000 × $7)140,000
Contribution margin460,000
Less fixed expenses:
Direct labor75,000$
Fixed manufacturing overhead150,000
Fixed selling & administrative expenses100,000 325,000
Net operating income135,000$
Variable Costing
Sales (20,000 × $30)600,000$
Less variable expenses:
Variable cost of goods sold (20,000 × $10)200,000
Contribution margin400,000
Less fixed expenses:
Fixed manufacturing overhead150,000$
Fixed selling & administrative expenses100,000 250,000
Net operating income150,000$
Cost of
Goods
Sold
Ending
Inventory
Period
ExpenseTotal
Variable costing
Direct material140,000$ 35,000$ -$ 175,000$
Direct labor60,000 15,000 75,000
200,000$ 50,000$ -$ 250,000$
Super-variable costing
Direct Material140,000$ 35,000$ -$ 175,000$
Direct labor- - 75,000
Fixed mfg. costs- - 150,000 225,000
140,000$ 35,000$ 225,000$ 400,000$
Super-variable costing net operating income135,000$
Add: Direct labor costs
deferred in inventory
(5,000 units × $3 per unit)15,000
Variable costing net operating income150,000$
Number of units produced25,000
Number of units sold30,000
Units in beginning inventory5,000
Unit sales price30$
Variable costs per unit:
Direct materials 7$
Fixed costs per year:
Direct labor75,000$
Manufacturing overhead150,000$
Selling & administrative
expenses100,000$
Super-variable Costing
Sales (30,000 × $30)900,000$
Less variable expenses:
Direct material (30,000 × $7)210,000
Contribution margin690,000
Less fixed expenses:
Direct labor75,000$
Fixed manufacturing overhead150,000
Fixed selling & administrative expenses100,000 325,000
Net operating income365,000$
Variable Costing
Sales (30,000 × $30)900,000$
Less variable expenses:
Variable cost of goods sold (30,000 × $10)300,000
Contribution margin600,000
Less fixed expenses:
Fixed manufacturing overhead150,000$
Fixed selling & administrative expenses100,000 250,000
Net operating income350,000$
Super-variable costing net operating income365,000$
Deduct: Direct labor costs
released from inventory
(5,000 units × $3 per unit)15,000
Variable costing net operating income350,000$
Costing Method1st Period2nd PeriodTotal
Super-variable135,000$ 365,000$ 500,000$
Variable150,000 350,000 500,000
