Variable Costing (the Variable Costing method in Managerial Accounting)

This video explains the Variable Costing method that some manufacturing firms use internally to compute product costs and calculate cost of goods sold. An example is provided to illustrate how to use Variable Costing to calculate the product cost per unit and to create a Variable Costing Income Statement. The video also discusses the difference between Variable Costing and Absorption Costing and explains why Variable Costing is in many ways superior to Absorption Costing.
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[@peterly4760]

Who's here watching this video the night before their test?? Like if it's you too. LOL

[@lemmontree1]

haha got me!

[@kingkitty4248]

Morning of test

[@SaiyanPrideX]

Holy crap, dude, I was watching some of your videos, preparing for an exam, and I was procrastinating, as I do. Somehow I just stumbled on your biography. Who knew the guy who just makes my favorite accounting tutorial videos has such a deep and inspiring history. That boggles my mind. You are awesome, man. Keep being you.

[@Edspira]

Thank you for the kind words and encouragement. I have been incredibly fortunate to receive an education and it is my pleasure to pass it along to others. I am always inspired by students such as yourself who are working hard to get an education. I hope you do excellent in all your courses, that you are able to find a career which challenges, motivates, and excites you, and that you are able to achieve all of your dreams, both personally and professionally. Wishing you the very best :)

[@jakesung386]

I am attending one of top 5 accounting colleges in the U.S. But, this is way better than my college prof. Only thing my prof does is reading PPT slides which I can do at home.

[@Edspira]

I'm sorry to hear that you've got a bad prof. I'm glad you found the videos useful!

[@felixtiley8945]

your videos are insane. thank you so much. you go so slowly and reiterate everything over and over which helps me understand so well

[@Edspira]

Glad you like them!

[@bokgil]

I've got a long exam in a couple of hours and this is really helping a lot. More power to you, Good Sir.

[@dublinboi92]

I spent almost 3 hours studying Variable Costing which was provided to me in college and couldn't understand it. A ten minute video from you and now I know exactly what it is. Thank you so much!

[@farsiadesign]

Couldn’t understand the chapter that I’m reading now without this video. Thank you

[@Foundprodigal]

Amazing how a guy on KZbin can explain this better than my professors. This actually makes sense to me!

[@Edspira]

Thank you!

[@Foundprodigal]

@@Edspira Do you have a video on master budgets and performance planning? Got me stumped 🙃

[@nathanlugo5410]

Hi there. I'm a CPA that works as internal auditor now and studying for my CIA exam III. I need to brush up on these concepts and your videos are pure gold! thank you for your excellent videos! They are helping me immensely! Cheers!

[@ArjunGurungTheArjun]

You, sir, are a genius!! I hated Accounting until I started watching your videos! You've made Accounting so much simpler and easy to understand. Thank you for sharing your knowledge in the best way possible.

[@JAFFER3657]

Variable costing is also known as Marginal Costing :) Thanks for the video Love U ^_^

[@Jago8300]

easy to remember the logic absortion vs variable is: 1) Absortion : absorved all cost 2) VARIABLE: only includes VARIABLE hence the term "Variable Costing"....

[@cl8wnm5n]

Variable manufacturing costs specifically

[@GRACIELOU21]

Thank you for the lightbulb moment! These videos are seriously going to improve my BEC score!

[@Edspira]

Excellent, that's what I like to hear!!

[@PraveenUduweriya]

I missed the AC/MC lectures at the uni but these few videos helped me catch up with them, easily! 10/10 strongly reccomended

[@cmatrainerumar]

Very helpful video to understand the variable costing

[@Edspira]

😀

[@antoniopesce8870]

I am studying AAT level 3 and I took already 2 of the 5 assessments. Management accounting:costing is going to be my next examination. thank to your videos I'm computing a lot more that I would by listening to my tutor.

[@Janjo64]

Got an exam for accounting tomorrow, thank you for helping me feel so much better!

[@taj935]

It's indeed a very easy explanation. I really like it. Respect from Ghulam Daag, Jalalabad, Afghanistan

[@Edspira]

Thanks for your support Taj M!

[@CamiloSanchez1979]

Thank you Ed!, this really helped me clarify what that f***ng book Financial and Managerial Accounting explains in such a complicated way!

[@Edspira]

You're very welcome!

[@khushipitaria6574]

Thanks a ton. Love from India!

[@SafPopal]

Thank you, it was a great help!!!

[@leonidas759]

Very useful Thanks!

[@lilsosohot]

Thinks for the explanation it's really helping me to understand more easily than my teacher explanation 🙊❤️❤️

[@TheFreeQ8Forever]

You are amazing.. After watching your videos, what seemed to be imposable to understand is now very easy. Much respect for people like u

[@Edspira]

+L. EAAS Thank you for the kind words. I have much respect for people like you, who put in the time to watch videos and study outside of class to do well! I hope you do great on your exams :) Best wishes

[@zenandezenande3941]

i have an exam in 8 hours and this is a very good revision tutorial

[@yuniorgalardy2781]

Thanks for posting. Great help in understanding this subject for the CPA exam.

[@Edspira]

Happy to help!

[@pinkcap]

Thanks for the informative video! I have found it to be very helpful in clearing many doubts. Just to correct you, variable costing is used for INTERNAL management decision making, as it does not comply with accounting standard IAS2 which requires the all related production overhead to be included.

[@Edspira]

This is a very important point that I should have stressed a little more in the video. You are correct that the Variable Costing method is only used for internal decision making. If a manufacturing company were to do variable costing, then it would also have to do absorption costing in order to make it's financial statements. This creates much more work for the accountants to keep track of 2 different methods, and is a major reason why more manufacturing firms don't use variable costing. Fantastic comment!

[@snoopytuktuk1623]

Good video very helpful!!!

[@clhialiwaanbe9926]

thanks for your explanation

[@deniseisaacs]

Very good, thank you.

[@brunallakmani3217]

Thank you very much.

[@user-es3zr7cj5p]

Thank you so much.

[@rajanrajan1001]

thanks for the video

[@quelijohanarodriguez2660]

thank you very much☺☺☺

[@grantworkman8847]

Very helpful

[@dannybans23]

Great that he mentioned that absorption costing is widely used pretty much because it is required. But he didn't elaborate on why it is required - the rationale under IFRS is that profit is a long-term concept and over the long-term, all costs, even fixed costs, are variable. Therefore, all costs, including fixed costs, should be reflected in the cost of inventory!

[@arabellesss1990]

thank u so much.!

[@Accountant4704]

This is brilliant! Clarifying economics that will blow your mind! Is absorption accounting related in any way to accounting at the center of service and industry and more grassroots business? There must be a good reason why the increase in the gross profit margin occurs when calculating absorption within fixed overheads. Why? What is going on here? Thank you - I learn most from the enthusiasm of the person narrating it. Abigail

[@bigjro010]

thank you very much... i have never been so satisfied with a video. just to confirm... assuming fixed cost would be absorbed onto units produced (every year)?

[@rjeption]

Insane! Thank you

[@Edspira]

No problem!

[@nightthemare4742]

Thanks! You are amazing.

[@Edspira]

Thank you!

[@sandesh1036]

Short and awesome videos....

[@Edspira]

Thank you! Best wishes

[@blazegamefame]

You're my hero

[@Edspira]

Happy to help!

[@paulissifu8439]

Awesome tutorial. I am preparing to write my P1 paper. However, you did not talk about Overhead Absorption rate in your videos. Or kindly help me with the link to it if you have made one. Thanks very much your tutorials have helped me tremendously.

[@zenandezenande3941]

thank you sir

[@AZB2000]

You sir have truly achieved the status of Hero of the Soviet Union, thank you for sharing your knowledge

[@Devansh_Gulabwani_]

Hey , I have this doubt , in variable costing we have DM DL VOH as our product costs however when we have to calculate total costs of goods sold , we compute it as DM DL VOH FOH even if we don’t consider it as our product our why do we add FOH to our cogs

[@bloomnach]

So are Variable costing and Contribution margin separate topics? Or is one a subset of the other? Thanks very much for these videos!

[@michaelanderson4664]

Great video, very helpful. But I think a better term for Revenue/Sales - COGS is Gross Profit and not Gross Margin; as Gross Margin is a percentage.

[@Edspira]

I also like the term gross profit, but some companies use the terms gross profit and gross margin interchangeably. For example, Apple refers to Revenue minus COGS as "Gross Margin" which you can see on page 29 of Apple's 10-K here: www.sec.gov/ix?doc=/Archives/edgar/data/320193/000032019319000119/a10-k20199282019.htm#sDBCC0D7FC5D05F49A572F9AA0627E992

[@renusharma3750]

Hello, I have an assignment on master budget. In which Ending inventory units are not given but value given $3960. These are given -Per unit DL=$13.2 (0.6hr *$22) , DM = 12.5 Fixed overhaed =0.30 per unit produced (Fixed manufacturing expected to be $43200 per quater) and variable overhead 1.50 per labour hour. To find out ending inventory unit, Do i have to divide amount by Variable Manufacturing cost or Total manufacturing cost?

[@dmstock6666]

What if that one division wants to purchase more from another division? Would that be relevant for transfer pricing?

[@sakibrahman6019]

awsome

[@julesmansour3415]

Aren"t the DM and DL and variable overhead must increase as well when we produce more products?

[@usamaali655]

Why do we use variable costing ?

[@emmanuellarochel4991]

Why variable cost of Q1 is the same as variable Q2 whether they produce more products in Q2

[@lydialorraine9594]

good to remember is COGS is only the 10 sold! that tripped me up bc they made 20 but the extra ten just goes to inventory

[@Jago8300]

I prefer absortion costing... my question to you is why would you not like to deferred that FOH? for example, for Q2 you are affecting unfairly your Income Statment since you have not sold all products (10 items remaining) for your variable costing example... if it was absortion to me it's fair that those FOH do not affect your IS since you have not sold it (it needs to be deferred).

[@Edspira]

+Jago A The drawback to absorption costing is that it can give a perverse incentive to managers-- they can manipulate earnings by altering the production level.

[@richullingfivefivefive1745]

Great videos, you did a marvelous job explaining both variable and absorption costing methods. However I’m going to go with Jago A here. In most cases firms are incentivized to produce more under the premise that they’ll sell more. Rarely will a company produce more products to end up holding them in inventory for long (this would actually generate additional periodic costs). Absorption costing is what allows economies of scale to work.

[@user-cu2fk1tm1o]

I think you wrong. Because in variable costing income statement we take sales - total variable cost = contribution margin

[@benjaminogle11]

not to nit-pick but that would be called Contribution Margin not Gross Margin.

[@edysucirahmat7077]

😢

[@jamorant8849]

you sound like james woods lol

[@MuTwAkElMoTaSeM]

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