The difference between the Absorption-costing and the Variable (Flexible) costin

Question

The difference between the Absorption-costing and the Variable (Flexible) costing The Variable-costing and absorption-costing incomes differ only when the level of inventory changes. The variable-costing and absorption-costing approach differ when the production level from that used in setting the fixed-overhead rate that is used in applying fixed overhead to production varies. The absorption-costing excludes fixed manufacturing overhead from the costs of products whereas variable-costing includes fixed manufacturing overhead in the costs of products The variable-costing excludes fixed manufacturing overhead from the costs of products whereas absorption-costing includes fixed manufacturing overhead in the costs of products

Explanation / Answer

Option B is correct.

Absorption costing assigns fixed overhead to cost of products and deduct the portion of units sold to arrive at net income. Variable costing on the other hand, does not assign the fixed cost to the cost of products and subtract the entire amount of fixed cost from contribution margin to arrive at net income.

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