Explain the differences between absorption costing and variable costing.
Explain, with the help of an example, how a company could use a variable costing system, as well as an absorption costing system. You have the option of using the company you work for as an example.
Explain which method is better for the company being discussed.
For Instructional Purpose
Absortion vs Valuable costing
• Explain the differences between absorption costing and variable costing. Both are used in managerial accounting.
Absorption costing method includes all the costs associated to the production of a particular good or product. Absorption costing technique entails the use of direct costs such as: (1) direct raw materials associated in manufacturing, (2) direct labor, (3) changing manufacturing overhead, (4) permanent manufacturing overhead, (5) variable (changing) selling and administrative costs, and (6) fixed (permanent) selling and administrative costs to determine the gross margin of production (Media & Johnston, 2015, p. 1). Absorption costing is used for financial reporting to help creditors determine the credit worthiness of an organization, to help ...
Absorption vs. Variable Costing