Comparing Variable and Absoption Costing
The easiest way to understand the difference between variable costing and absorption costing
is with an example. We will study Stassen Company, an optical consumer-products
manufacturer, in this chapter. We focus in particular on its product line of high-end telescopes
for aspiring astronomers.
Stassen uses standard costing:
Direct costs are traced to products using standard prices and standard inputs allowed
for actual outputs produced.
Indirect (overhead) manufacturing costs are allocated using standard indirect rates
times standard inputs allowed for actual outputs produced.
Stassen’s management wants to prepare an income statement for 2012 (the fiscal year just
ended) to evaluate the performance of the telescope product line. The operating information
for the year is as follows: