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BUS 630 week 3 DQ 2 Variable vs Absorption Costing

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BUS 630 week 3 DQ 2 Variable vs
Absorption Costing
Variable and absorption are two different costing
methods. Almost all successful companies in the
world use both the methods. Variable costing and
absorption costing cannot be substituted for one
another because both the systems have their
own benefits and limitations.
These costing approaches are known by various
names. For example, variable costing is also
known as direct costing or marginal costing and
absorption costing is also known as full costing or
traditional costing.
The information provided by variable costing
method is mostly used by internal management for
decision making purposes. Absorption costing
provides information that is used by internal
management as well as by external parties like
creditors, government agencies and auditors etc.
Computation of unit product cost under
two methods:
Under absorption costing system, the product cost
consists of all variable as well as all
fixed manufacturing costs i.e., direct materials,

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