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Q-21-2RQ

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Horngren'S Financial And Managerial Accounting
Found in: Page 1167

Short Answer

What is variable costing?

Answer

Variable costing is the modern method of calculating product cost per unit.

See the step by step solution

Step by Step Solution

Step 1: Meaning of absorption costing

Variable costing is the modern method of calculating product cost per unit and operating income. This method treats fixed costs as sunk costs. Also, variable costing calculates contribution margin instead of gross profit.

Step 2: Difference between variable and absorption costing

The main difference is absorption costing also considers fixed manufacturing overhead as product cost, whereas variable cost considers it as period cost.

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