Q-21-2RQ - Horngren'S Financial And Managerial Accounting

Question

What is variable costing?

Step-by-Step Solution

Answer

Answer

 

Variable costing is the modern method of calculating product cost per unit.           

 

Step 1: Meaning of absorption costing

 Variable costing is the modern method of calculating product cost per unit and operating income. This method treats fixed costs as sunk costs. Also, variable costing calculates contribution margin instead of gross profit.

Step 2: Difference between variable and absorption costing

The main difference is absorption costing also considers fixed manufacturing overhead as product cost, whereas variable cost considers it as period cost.