Appendix 6A: Super-Variable Costing

Super-variable CostingAppendix 6ALearning Objective 6(Appendix 6A)Prepare an income statement using super-variable costing and reconcile this approach with variable costing.Overview of Variable and Super-variable CostingDirect MaterialsDirect LaborFixed Manufacturing OverheadFixed Selling and Administrative ExpensesVariableCostingSuper-variableCostingProductCostsPeriodCostsProductCostPeriodCostsSuper-variable costing classifies all direct labor and manufacturing overhead costs as fixed period costs and only direct materials as a variable product cost. To simplify, in this appendix we also assume that selling and administrative expenses are entirely fixed.Unit Cost ComputationsHarvey Company produces a single product with the following information available:Unit product cost is determined as follows:Unit Cost ComputationsUnder super-variable costing, only the direct material costs are included in product costs. Under variable costing, direct materials and direct labor are included when determining unit product cost. Let’s assume the following additional information for Harvey Company.20,000 units were sold during the year at a priceof $30 each.There is no beginning inventory. Now, let’s compute net operatingincome using both super-variableand variable costing.Variable and Super-variable Costing Income StatementsSuper-variable Costing Contribution Format Income StatementDirect material costs only.All direct laborcosts are expensed.Direct material and direct labor costs.Direct labor cost deferred in inventoryis 5,000 units × $3 = $15,000.Variable Costing Contribution Format Income StatementComparing the Two Methods Direct labor $75,000 Units produced 25,000 units= = $3 per unitWe can reconcile the difference betweensuper-variable and variable income as follows:Comparing the Two MethodsExtended Comparisons of Income Data Harvey Company – Year TwoSince the variable costs per unit, total fixed costs, and the number of units produced remained unchanged, the unit cost computations also remain unchanged.Unit Cost ComputationsDirect material costs only.All direct laborcosts are expensed.Super-variable Costing Contribution Format Income StatementVariable Costing Contribution Format Income StatementDirect material and direct labor costs.Direct labor cost released from inventoryis 5,000 units × $3 = $15,000.Comparing the Two Methods Direct labor $75,000 Units produced 25,000 units= = $3 per unitWe can reconcile the difference betweensuper-variable and variable income as follows:Comparing the Two MethodsEnd of Appendix 6A