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Variable Costing System:

  1. Variable Costing Versus Absorption Costing System:

    Under absorption costing system, all costs of production (both variable and fixed) are treated as product costs. The unit product cost consists of direct materials, direct labor and both variable and fixed overhead. When absorption costing method is used a portion of fixed manufacturing overhead cost is allocated to each unit of product along with variable manufacturing cost. This approach is also called full costing method because all costs of production are included in the product cost. Click here to continue reading.

  2. Income Comparison of Variable and Absorption Costing:

    The income statements prepared under absorption costing and variable costing usually produce different net operating income figures. This difference can be quite large. Here we will explain the basic reason of this difference in income. The explanation for this difference needs two separate income statements one under absorption costing and other under variable costing. Click here to continue reading.

  3. Advantages, Disadvantages and Limitations of Variable Costing System:

    The data that are required for cost volume profit (CVP) analysis can be taken directly from a variable costing format income statement. These data are not available on a conventional income statement based on absorption costing. Click here to continue reading.

  4. Variable Costing and Theory of Constraints:

    The Theory of Constraints (TOC) focuses on managing constraints in a company as the key to improving profits. Companies involved in Theory of Constraints (TOC) use a form of variable costing. Click here to continue reading.

  5. Advantages and Disadvantages of Absorption Costing:

    Absorption costing method recognizes the importance of fixed costs in production. Click here to continue reading.

  6. Impact of Just In Time (JIT) Inventory Methods on Variable and Absorption Costing System:

    Variable costing and absorption costing produce different net operating income figures whenever the number of units produced is different from the number of units sold. Click here to continue reading.




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