Chapter 06A – Lecture Notes
6A-1
I. Appendix 6A: super-variable costing (slide #1 is the title
slide)
Learning Objective 6: Prepare an income statement using
super-variable costing and reconcile this approach with
variable costing.
A. Super-variable costing
i. The unit product cost consists only of direct materials.
ii. Direct labor, fixed manufacturing overhead, and the
variable and fixed selling and administrative expenses
are treated as period costs and deducted from revenue
as incurred.
B. Variable costing
i. The unit product cost consists of direct materials and
direct labor costs.
ii. Fixed manufacturing overhead and all selling and
administrative expenses are treated as period costs and
deducted from revenue as incurred.
II. Harvey Company—an example
A. Unit cost computations
i. Assume Harvey Company produces a single product
with available information as shown.
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Chapter 06A – Lecture Notes
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ii. The unit product costs under super-variable and
variable costing would be $7 and $10, respectively.
1. Under super-variable costing, only the direct
material costs are included in product costs.
2. Under variable costing, direct materials and
direct labor are included when determining unit
product cost.
B. Income comparison of super-variable and variable costing
i. Harvey Company—additional assumptions.
1. 20,000 units were sold during the year.
2. The selling price per unit is $30.
3. There is no beginning inventory.
ii. Super-variable costing
1. The unit product cost is $7.
2. All $75,000 of direct labor is expensed in the
current period.
3. The net operating income is $135,000.
iii. Variable costing
1. The unit product cost is $10.
2. The direct labor deferred in inventory is
$15,000 (5,000 units × $3 per unit).
3. The net operating income is $150,000.
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iv. Comparing the two methods
1. Under variable costing, $60,000 of direct labor is
included in cost of goods sold and $15,000 is
deferred in ending inventory as an asset on the
balance sheet.
2. Under super-variable costing, the entire $75,000
of direct labor is treated as a period expense.
a. The super-variable costing ending
inventory is $15,000 less than variable
costing, thus explaining the difference in
net operating income between the two
methods.
3. The difference in net operating income between
the two methods ($15,000) can also be reconciled
by multiplying the number of units in ending
inventory (5,000 units) by the direct labor cost
per unit ($3) that is deferred in ending inventory
under variable costing.
C. Extended comparisons of income data
i. Harvey Company—additional assumptions/facts
1. 30,000 units were sold in year 2.
2. The selling price per unit, variable costs per unit,
total fixed costs, and number of units produced
remain unchanged.
3. 5,000 units are in beginning inventory.
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Chapter 06A – Lecture Notes
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ii. Unit cost computations
1. Since the direct material and direct labor costs per
unit remain unchanged, the unit product cost
computations also remain unchanged.
iii. Super-variable costing
1. The unit product cost is $7.
2. All $75,000 of direct labor is expensed in the
current period.
3. The net operating income is $365,000.
iv. Variable costing
1. The unit product cost is $10.
2. The direct labor cost released from inventory is
$15,000.
3. The net operating income is $350,000.
v. Comparing the two methods
1. The difference in net operating income between
the two methods ($15,000) can be reconciled by
multiplying the number of units in beginning
inventory (5,000 units) by the direct labor cost
per unit ($3) that is released from beginning
inventory under variable costing.
2. Across the two-year time frame, both methods
reported the same total net operating income
($500,000).
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