Question

Question: Communication Activity 21-1

In 100 words or fewer, explain the main differences and similarities between variable costing and absorption costing.

Short answer

Answer

The main dissimilarity between variable and absorption costing is that one method considers the fixed manufacturing overhead, and the other is not.

Step-by-step solution

Meaning of Variable Costing 

Variable costing is a cost accounting technique that only considers the variable manufacturing overheads while calculating the cost of a product.

Main differences between variable costing and absorption costing

In absorption costing,all the manufacturing costs are charged to the cost of the product. While in variable costing, onlydirect costs incurred being the part of the cost of the product.

Absorption costing focuses on giving resultsof gross profit. Variable costingcalculatesthe contribution margin.

Similarities between variable costing and absorption costing

Variable and absorption costing techniques both help in calculating operating income. Both methods include material and labor costs as a direct cost.