Q-21-3RQ - Horngren'S Financial And Managerial Accounting

Question

 How are absorption costing and variable costing the same? How are they different?

Step-by-Step Solution

Answer

Answer

 

Both methods consider variable cost as product cost.  

 

Step 1: Similarity between absorption and variable costing

The similarity between absorption and variable costing is that both methods treat direct material, direct labor and variable manufacturing overhead as product cost while calculating operating income.

Step 2: Difference between variable and absorption costing

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