Just In Time

All fixed costs.

Under the contribution approach (variable costing), all variable expenses (both manufacturing and non-manufacturing) are deducted first from sales to arrive at contribution margin.

Fixed costs (both manufacturing and non manufacturing) are deducted from contribution margin to arrive at net income before taxes.

Under traditional approach (absorption costing), all the manufacturing costs (both fixed and variable) are deducted from sales to arrive at gross profit (margin).

Non-manufacturing (Selling and administrative) costs are then deducted from gross margin to arrive at net income before taxes.

Disadvantages of system approach that it is rigid, if there is any change in the environment, it will react quite slow and this approach is good for manufacturing industry but not service industry which require to adopt to the external environment.

The approach may vary based on their product and market focus.