Variable Costing - Accounting Tutors - Online Tutoring

Variable Costing - Accounting Tutors - Online Tutoring Variable costing is defined as a technique where costs of production that vary with output is treated as product costs. The variable cost includes direct materials, direct labor and variable portion of manufacturing overhead. Though to determine variable cost there are many cost drivers on which basis cost is being accumulated and apportioned according to the usage of these cost drivers like number of units produced, machine used for production for how many hours, labor hours used for production and lastly how much of the transportation cost to be beard. Example: Beginning inventory in units 0 Units produced 4,800 Units sold 4,000 Sales $400,000 Selling price per unit = $400,000 / Unit sold 4,000 = $100. Material cost (unit level or variable) $96,000 = $20/unit Variable conversion cost used (committed) 48,000 $10/unit Facility-level or fixed manufacturing cost $72,000 $15/unit Indirect operating cost (fixed) $80,000 $16.67/unit The variable cost of goods sold is: Variable cost of goods sold = Material cost + Variable conversion cost = $96,000 + $48,000 = $144,000