MA Chapter 3 Part 2: Cost Accounting

Variable Costing Meaning

Absorption costing includes fixed manufacturing overhead in inventory, while variable costing does not.

Process Costing Meaning

Process costing means total production costs are spread over many similar units. So instead of asking “how much did this specific job cost?”, we ask “what is the average cost per unit produced?” If total costs are €100,000 and the company produced 10,000 identical bottles, the cost per bottle is €10. Conversion costsmeans all manufacturing costs except direct materials. So conversion costs include direct labor, factory electricity, machine depreciation, maintenance, and manufacturing overhead. Easy way to remember: direct materials are the physical input, conversion costs are the costs needed to convert those materials into finished products.

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