Variable Costing vs Absorption Costing (Accounting)

The video tutorial explains variable costing, a method focusing on variable production costs as product costs. It highlights the importance of separating variable and fixed costs for CVP analysis, particularly in Managulia County. The tutorial contrasts variable costing with absorption costing, which includes all production costs as product costs, aligning with GAAP but not ideal for CVP analysis.

What is the primary focus of variable costing?

• Including all production costs as product costs

• Separating variable and fixed costs

• Emphasizing fixed costs over variable costs

• Aligning with GAAP standards

Which costs are included in the product cost under variable costing?

• All production costs

• Only fixed overhead

• Direct material, direct labor, and variable overhead

• Direct material, direct labor, and fixed overhead

How is fixed manufacturing overhead treated in variable costing?

• Combined with variable costs

• Excluded from all calculations

• Included in product costs

• Treated as a period cost

What is a key difference between variable costing and absorption costing?

• Variable costing includes all production costs

• Absorption costing separates variable and fixed costs

• Variable costing aligns with GAAP

• Absorption costing includes both variable and fixed costs as product costs

Why is absorption costing not ideal for CVP analysis?

• It only considers variable costs

• It does not separate variable and fixed costs

• It is not aligned with GAAP

• It excludes direct labor costs