Buy custom Variable and absorption costing

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Variable costing provides a useful perspective of the impact that fixed costs have on profits by bringing them together and highlighting them, instead of having them scattered throughout the statement.

Absorption product costs include unitised fixed overhead, which can result in sub-optimal decisions, especially in the short term as fixed costs are not differential costs in the short term...

However, in the modern business environment, with a high level of fixed overhead, a relatively small percentage of manufacturing costs may be assigned to products under variable costing. Also, in the longer term a business must cover its fixed costs too, and many managers prefer to use absorption cost when they make cost-based pricing decisions...

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