The main differences between the full cost method and the variable cost method include ()?

ABE

There are three main differences between the variable costing method and the full costing method:

I. Product costs are composed of different content

Secure costing, the product cost includes direct materials, direct labor, variable manufacturing overhead and fixed manufacturing overhead;

Variable costing, the product cost only includes direct materials, direct labor and variable manufacturing overhead. materials, direct labor and variable manufacturing overhead. Fixed manufacturing overheads are not included in product costs, but are treated as period costs; the full amount is included in the profit and loss account and is deducted directly from the current period's sales receipts.

(Comparing the two, the variable cost method has less fixed manufacturing overhead than the full cost method) As of now, the two methods are not interchangeable, but are used simultaneously.

Second, in the "finished goods" and "in the product" inventory valuation difference

The use of full-cost method, because it will be all the production costs (including variable and fixed production costs) in the products sold, inventory of finished goods and products in process, the ending finished goods and products in process inventories contain not only variable production costs, but also a portion of fixed costs (e.g., fixed costs such as depreciation of machinery and equipment).

When the variable cost method is used, since only variable costs are allocated among products sold, finished goods in stock, and products in process, and fixed costs are not carried forward to the next period, and the full amount is deducted directly from the sales revenue of the current period, the ending finished goods and products in process inventories are not burdened with fixed costs, and their amount is necessarily lower than the valuation when the full cost method is used. (Note will choose to judge)

Expanded:

Variable costing, also referred to as straight-line costing. It is an abbreviation for variable costing, which is a costing model that takes cost pattern analysis as a prerequisite in an organization's regular costing process, and takes only variable production costs as a component of product costs, while taking fixed production costs and non-production costs as period costs and calculating profit and loss according to the contributory profit and loss determination procedure.?

The variable cost method is a new model designed by management accounting to reform the traditional costing model of financial accounting.

Variable cost means that the total cost varies with the change in the volume of business (production, operations, or sales), such as direct labor and direct materials in a business.

The scientific management of enterprises requires accounting to provide information for the internal management of enterprises as a basis for forecasting, decision-making, planning and control of economic activities, and the traditional total cost accounting method cannot adapt to the increasingly competitive market economy. After the Second World War, the higher requirements for accounting, variable cost method began to be born in the western enterprises, and nowadays, it is popularly used in the internal management of western enterprises.

The variable cost method divides costs incurred in a certain period into two categories, namely, variable costs and fixed costs, according to their cost nature, where variable costs are divided into variable production costs and variable non-production costs (i.e., direct materials, direct labor, and variable manufacturing overheads), and variable non-production costs and fixed costs are all treated as period costs.

Under the variable cost method, variable production costs are simply charged separately between finished goods sold, finished goods in stock, and products in process. Therefore, the inventory valuation of products in process and finished goods under the variable cost method is necessarily lower than the inventory valuation under the full cost method.

Advantages

1. Operating profit rises and falls with increasing or decreasing sales, which is the kind of accounting information that business managers want.

2. It facilitates cost-volume-profit analysis, which is good for and sales forecasting. The basic theory and procedures of the variable cost method reveal the intrinsic relationship between cost, business volume, and profit.

3. It is conducive to prompting the management of enterprises to pay attention to sales, preventing blind production.

4. It is good for short-term business decision-making.

5. Flexible budgeting. Flexible budgeting is actually based on the principle of variable cost method of preparation, in the enterprise to take the sale of production, can be adjusted with the changes in business volume and maneuvering, flexible.

6. Favor cost control and performance evaluation.

7. Favor the calculation of product costs.

Because of the above advantages of variable cost, and therefore the National Association of Accountants (NAA), the American Accounting Association (AAA) and other accountants believe that variable cost is not only used in internal management, but also suitable for external statements (but actually can not be used as an external statement, please continue to read the following content).

Difference:

(I) Different theoretical basis

The theoretical basis of variable cost method:Fixed manufacturing costs are linked to a specific accounting period, and are proportional to the length of the ongoing operating period of the enterprise's production and business activities, and fade away with the passage of time. Its benefits should not be deferred to the next accounting period, but in the period in which it is incurred, the full amount included in the income statement, as a deduction from the sales revenue of the period.

The traditional full-cost approach emphasizes the consistency of cost reimbursement, based on the theory that fixed manufacturing overhead occurs in the production area and is directly related to the production of the product, and that it is no different from the expenditures on direct materials, direct labor, and variable manufacturing overhead, and that it should be treated as a portion of the cost of the product and reimbursed from the revenues from the sale of the product.

(B) the application of the premise and the content of the different cost components

Changing cost method is based on the analysis of the cost pattern, the cost of the product according to its linear relationship with the change in production is divided into variable costs and fixed costs, and a rough estimate. Among them, variable costs include direct materials, direct labor, variable manufacturing costs and variable selling and administrative expenses; fixed costs include fixed manufacturing costs and fixed selling and administrative expenses.

The full cost method divides costs into two categories, production costs and non-production costs, according to their use. Production costs include direct materials, direct labor, and manufacturing overhead, while non-production costs include period costs such as selling and administrative expenses.

(C) different product cost components

Because of the above two differences, the two costing methods in the product cost components are also different: full-cost method, the product cost includes direct materials, direct labor and for the production of the product and all the cost of manufacturing (including variable manufacturing costs and fixed manufacturing costs), the cost of products with the flow and carry forward. The cost is carried forward as the product flows.

While the variable cost method will be the fixed part of the manufacturing costs as the current period costs, with selling and administrative expenses together with the full amount of deduction, and with the end of the period whether or not the balance of inventory has nothing to do with the cost of the product contains only direct labor, direct materials and variable manufacturing costs.

(d) Inventory valuation and cost process is different

Using the variable cost method, whether it is in the product, inventory of finished goods or sold products, the cost of its cost contains only variable costs, so the closing balance of inventory is only based on variable costs and does not include fixed costs

. Reference:

Baidu Encyclopedia-Changing Cost Method? Baidu Encyclopedia-Full Cost Method