Accounting: Variable Costing
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Please discuss variable costing. Discuss arguments both for and against variable costing, including situations when variable costing is not an appropriate method to use. Include a conclusion stating your position on whether or not you would recommend this method of costing. Use external material to back up your answer.
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Solution Summary
This solution defines variable costing and describes its benefits and its limitations, including an argument supporting the use of this method of costing.
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Variable costing has several arguments in its favor. The first is that there is separation of costs when variable costing is used. Second, different methods for controlling costs such as standard costing and flexible budgets are related to variable costing. Third, the income statement is prepared in contribution format. This helps perform cost volume profit analysis. Fifth, changes in inventory do not affect the profit figure. Sixth, it allows for the examination of the impact of fixed costs by separating it. Seventh, the contribution margin method ...
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