1. What are the differences between absorption and variable costing methods on income statement presentation?
2. How are fixed costs treated under variable costing? How are they treated under absorption costing?© BrainMass Inc. brainmass.com June 3, 2020, 6:05 pm ad1c9bdddf
Here is your answer:
The distinction between absorption and variable costing is based on the treatment of fixed overhead.
Under absorption costing, fixed overhead is assigned to units of inventory and shows up in the income statement as part of the CGS when the units are sold. When units are produced and not sold, fixed overhead stays in finished the goods inventory. Absorption costing includes fixed manufacturing overhead in inventoriable costs.
Under variable costing, no fixed overhead is assigned to inventory. Fixed overhead is a period expense that enters the income statement as a line-item every period ...
This solution outlines the differences between absorption and variable costing methods. Additionally, the solution answers how fixed costs are treated under both methods.