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It informs the management that how much any unit of product is helping towards recovering the fixed cost.
Variable costing offers several advantages for internal reporting, including clearer insights into cost behavior by separating fixed and variable costs. This distinction helps management make more informed decisions regarding pricing, budgeting, and operational efficiency. Additionally, variable costing facilitates better performance evaluation by linking costs directly to production levels, allowing for a more accurate assessment of profitability. Lastly, it enhances forecasting and planning by highlighting how costs will change with varying production volumes.
There are two methods of preparing Income Statement. They are:- 1. Absorption costing method. 2. variable Costing method.
VARIABLE COSTING VERSUS ABSORPTION COSTINGAbsorption 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.
Variable costing is called marginal costing while direct costing is separate concept.
fixed expense
I think..... In marginal costing method only variable cost is considered as product cost and fixed cost is not considered as product cost. But in reality product cost include fixed and variable, thus both variable and fixed costs should be considered while allocating cost. Marginal costing is used for inside reporting and absorption costing is used for outsider to clarify the real cost of product........ Am i right? Please confirm it
variable costing
GAAP does NOT preclude use of variable costing for external financial reports. The only place the literature addresses this question is in ARB (Accounting Research Bulletin #4) which states that the exclusion of all overhead from inventory is unacceptable. Variable costing does not attempt to exclude overhead associated with the production of product, i.e. variable overhead. But it does exclude the cost of providing productive capacity. It is odd that in its discussion of the current standard for segment reporting that the FASB said that external users of financial information should received data prepared on a basis consistent with that used by management for decision making. Since it is widely accepted that variable costing is useful to management, can this statement by the FASB be consider an endorsement of variable costing in the financial statements of companies which use it internally?
absorption costing
'''Direct Costing'''