ABSORPTION AND VARIABLE

Question 1

absorption/full/conventional
- gaap
- includes all mfg cost

Answer 1

variable/direct
- used internally
- includes variable mfg cost only
- use cvp format

Question 2

How to reconcile variable income to absorption income?

Answer 2

VC NI
+ or - change in inventory x foh rate

note:

add if inventory increase
minus if inventory decrease

Question 3

Pattern to remember?

Answer 3

if P = S , ANI = VNI
if P > S , ANI > VNI
if P < S . ANI < VNI