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What are the differences between Absorption Costing and Variable Costing?

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August 11, 2010 6:49PM

VARIABLE COSTING VERSUS ABSORPTION COSTING

Absorption costing applies all manufacturing overhead to production costs while they flow through Work-in-Process Inventory, Finished-Goods Inventory and expenses on the income statement while Variable Costing only applies variable manufacturing overhead.

Fixed manufacturing overhead is expensed immediately as it is incurred under variable costing while it is inventoried until the accounting period during which the manufactured goods are sold under absorption costing.