How Variable Costing Differs from Costing in Absorption (Coursework Sample)

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Variable Costing and Segment Reporting: Tools for Management; Explaining how Variable Costing Differs from Costing in absorption
Variable costing and costing in absorption are the two key concepts in this chapter, and they function and vary in numerous ways (Breewer, 2018). They essentially engage with a valuation of inventory and cost of sales. Only certain manufacturing expenses that fluctuate with production are regarded as inventory costs in variable costing. Inventory items, production overhead, and the variable element of production overhead are frequently considered. They directly impact production costs (variable): if the company involved produces more, it costs too much; if they produce less, it costs less (Breewer, 2018). Permanent manufacturing overhead is recognized as a long-term liability. It is shown as an item on the financial statements in its full each term, much like selling and administrative costs. Marginal costing or direct costing are terms used to describe this method. On the other hand, costing in absorption considers all manufacturing expenses to be output costs, irrespective of if they are reversible or irreversible (Breewer, 2018).
For example, consider Harvey, a firm that produces a single product