A method of inventory costing in which all variable manufacturing costs are included as inventoriable costs, and all fixed manufacturing costs are excluded from inventoriable cost and instead treated as cost of the period they incurred
Absorption costing
A method of product costing in which all manufacturing costs, both fixed and variable, are treated as product inventoriable costs
Cost segregation in variable costing
According to behavior (whether fixed or variable)
Cost segregation in absorption costing
According to function (whether manufacturing or selling and administrative)
Principles of matching principle
Cause and effect - if there's a sale, then there is something to recognize as expense (COGS)
Immediate recognition - once the cost incurred, it is recognized immediately as expense
Systematic allocation - applicable only to those expenses that are occurring every year, month, or period constantly
Product cost
Costs incurred in creating the product, recognized as expenses under COGS, and a direct cost when it comes to services
Product cost
Inventoriable: Yes
Cost flow: From incurrence to inventory to profit or loss analysis
Accounting treatment: Capitalize first - after the production of product, it is recognized as an asset, before converting it as an expense (COGS)
Period cost
Costs incurred in operating the business, such as general and administrative expenses, and selling expense or distribution cost
Period cost
Inventoriable: No
Cost flow: From incurrence to profit or loss analysis
Accounting treatment: Expense outright - there is no need to capitalize since it is not inventoriable
