Asked by Karan Patel on May 12, 2024
Verified
Variable costing is more compatible with cost-volume-profit analysis than is absorption costing.
Variable Costing
An accounting method that includes only variable production costs (direct labor, direct materials, and variable manufacturing overhead) in product costs.
Cost-Volume-Profit Analysis
An accounting technique used to determine how changes in costs and sales volume affect a company's operating income and net income.
Absorption Costing
An accounting method that includes all manufacturing costs (direct materials, direct labor, and overhead) in the cost of a product.
- Understand the key differences between absorption costing and variable costing methods.
- Grasp the relationship between production and sales volume and their impact on net operating income under different costing methods.
Verified Answer
Learning Objectives
- Understand the key differences between absorption costing and variable costing methods.
- Grasp the relationship between production and sales volume and their impact on net operating income under different costing methods.
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