A reply to Erica Williams on the difference between variable costing and absorption costing in a business
Student reply
1. A reply to Erica Williams on the difference between variable costing and absorption costing in a business and the impact brought about by using the different approaches.
ERICA WILLIAMS
Answer in 150 words or more
Variable costing is a concept used in managerial and cost accounting in which the fixed manufacturing overhead is excluded from the product-cost of production. The method is in contrast with absorption costing, in which the fixed manufacturing overhead is allocated to products produced. In accounting frameworks such as GAAP and IFRS, variable costing is not allowed in financial reporting. When it comes to the accounting standards for the external financial reporting, the cost of inventory must include all costs that was used to prepare the inventory for its intended use.
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