Managers can use variable costing information for internal decision making,but they must use absorption costing for external reporting purposes.

Variable Costing

A bookkeeping approach that incorporates solely variable production expenses such as direct materials, direct labor, and variable manufacturing overhead into the costs of products, while omitting fixed overhead.

Internal Decision Making

The process of making choices or decisions within a company based on internal data and analysis.

Absorption Costing

Absorption costing is an accounting method that includes all manufacturing costs (direct materials, direct labor, and both variable and fixed manufacturing overhead) in the cost of a product.