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Variable costing and absorption costing are two types of costing methods which are used for accounting purposes. The two different methods are used for applying the production costs to the products and services. Almost all successful companies over the world use both the methods. Variable costing is otherwise known as direct costing or marginal costing and absorption costing is otherwise known as full costing or traditional costing. Both the methods are different in their own way and cannot be substituted. Variable costing and absorption costing given in Variable costing and Absorption costing Assignment Help have their own benefits.
Objectives, advantages and disadvantages
The objectives and benefits of variable costing and absorption costing given in Variable costing and Absorption costing Assignment Help are
• Variable costing is an accounting cost concept. The variable costing method or direct costing only includes the variable costs directly related to production. The information or data provided by this method is mostly used by the internal management for decision making purposes. This is an accounting method which includes only variable manufacturing costs where direct labour, direct materials were used in unit product costs. Here the manufacturing overhead is sustained in the period that a product is produced.
• Absorption costing is a costing method where all direct cost and fixed and overall manufacturing overhead costs were applied to the final product. This method includes all costs including fixed costs. It provides information that is used by internal management as well as by the external parties like government agencies, creditors, auditors etc. It is a method where all of these costs move with the product through the main accounts unless and until the product is being sold.
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The advantages of variable costing and absorption costing given in Variable costing and Absorption costing Assignment Help are
1. In case of absorption costing method the costing process should be in comply with the GAAP (generally accepted accounting principles).
2. When the company doesn’t sell its entire product when they were manufactured at the same accounting period, at that time absorption costing provides a more accurate accounting of net profitability.
3. Variable costing makes it easier for the company to compare the potential profitability of manufacturing one product over another where the costs is directly associated with the company.
4. Absorption costing method is required by the company for calculating and filling its taxes.
5. Variable costing helps a company to run cost volume profit analysis.
The disadvantages of variable costing and absorption costing given in Variable costing and Absorption costing Assignment Help are:
1. Variable costing makes it more difficult to determine ideal pricing.
2. Absorption costing is not helpful as the other one in comparing profitability in different product lines.
Features of Variable costing and Absorption costing Assignment Help are
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