Q-21-16 - Horngren'S Financial And Managerial Accounting

Question

How can variable costing be used in service companies?

Step-by-Step Solution

Answer

Answer

 

Variable costing can be used for profitability analysis and contribution margin analysis.

Step 1: Definition of Service Company

Service companies are those companies that do not produce any product but render services to their customers.

Step 2: How can variable costing be used in service companies

Service companies have both variable and fixed cost. Variable costing can be used for making short-term decisions in the service companies by analyzing profitability and contribution margin analysis.