overhead application: variable and absorption costing
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Overhead Application:Variable and Absorption
Costing
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The differences between variable-costing and absorption-costing methods are based on the treatment of fixed manufacturing overhead.
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-Variable costing excludes fixed manufacturingoverhead from inventoriable costs.
-Absorption costing treats fixed manufacturingoverhead as inventoriable costs.
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-The fixed-overhead rate is the amount offixed manufacturing overhead applied toeach unit of production.
-It is determined by dividing the budgetedfixed overhead by the expected volumeof production for the budget period.
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Under absorption costing, fixed overhead appears in the cost of goods sold.
Under variable costing, fixed overhead is a period cost.
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