Reference no: EM132637360

Variable Costing has now arrived of a period and is providing to be an exceptionally important tool in planning and controlling operations in many large industrial companies. However still not as broadly working as absorption costing, it is progressively gaining popularity in use. In Variable Costing, product costs contain only those manufacturing costs which are directly related to the product and vary with production volume. Under absorption costing all manufacturing costs, direct and indirect, are included as cost of manufactured goods. This article discusses variable costing that is used only for internal reporting and analysis and its applicability in the manufacturing situation. Variable and absorption costing are not commonly exclusive. Accountants find that variable costing more effectively meets internal requirements because it provides better insight into cost relationship while the absorption costing method meets external reporting requirements.

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