[PR_CPA_2B]

I understand that when using Variable/Direct costing you only include DM, DL & variable OH, but when you are calculating break even point you include variable SG&A expense. This gets me kind of confused when answering questions. Can anyone clarify this?

Thanks

[whitesoxfancpa]

When using variable costing, you only use DM, DL, and variable OH for the MANUFACTURING costs. That is, the PRODUCT cost is only DM, DL, and variable OH.

However, in calculating breakeven point, you have to include ALL variable costs, not just the manufacturing/product costs.

In calculating contribution margin, it's sales – variable costs = CM. Included in those variable costs are the variable SG&A.

I think you were thinking that variable costs = product costs. That's not necessarily true. Variable SG&A are period costs.

So if the question is calculate contribution margin or breakeven point, absolutely include the variable SG&A.

If the question is calculate the product cost using variable costing, DO NOT use the variable SG&A.

Hope that helps you out.

AUD 96 FAR 95 REG 94 BEC 88

[PR_CPA_2B]

Yeah, that helps! Thanks

[Author]

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