REVIEWER when 

the units are sold, and is

Variable Costing and Analysis
Variable costing is an extension of marginal
costing, direct costing, or contribution margin
costing. Variable costing includes variable
production costs as part of the product cost.
Direct costing includes all costs directly
identified with the segment as product
Basic principles
 Variable costing is the same as marginal
costing, direct costing, or contribution
margin costing.
 Variable costing is an extension of CVP
analysis
 The basicassumptions in the marginal  therefore, should not be treated as
Costing (i.e., CVP analysis) are followed
except that production is not equal to
sales.
 Technically speaking, variable costing  costs, both to absorption and variable
and direct costing are different.
Variable costing includes -variable
production costs as part of the product
cost while direct costing includes all
costs directly identified with the
segment as product costs- Another,
variable costing focuses on the
contribution margin while direct costing
zeroes-in on segment margin.
still deferred in the inventory when the
units are still
unsold. This follows the principle of mat
ching of costs against revenues.
 Under variable costing, fixed overhead
is a period cost, meaning, outright an
expense. This means the fixed overhead
is immediately charged against
revenues without regard as to whether
the units are already sold or stiff unsold.
This follows the immediate
recognitionprinciple. The rationale for t
his treatment is because the fixed
overhead would
be incurred regardless of whether
the production occurs or not, and
product cost
 Direct materials, direct labor, and
variable overhead -are product
costing systems.
 Variable expenses and fixed expenses
are period costs> both to absorption
and variable costing-systems.

 The unit costs from the preceding
period are the same in the current
period; meaning, unit costs are
assumed to be constant

Treatment of fixed overhead, and other

costs and expenses

 Under absorption costing, fixed overhe
ad  is a product cost, inventoriable
costs, or deferrable costs. This means
that the cost assigned
to- the product is charged against sales