ACVC notes 02

• Variable costing


  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