ECONOMICS

Detailed explanation-1: -The only difference between absorption costing and variable costing is in the treatment of fixed manufacturing overhead. Using absorption costing, fixed manufacturing overhead is reported as a product cost. Using variable costing, fixed manufacturing overhead is reported as a period cost.

Detailed explanation-2: -Under variable costing, fixed overhead is not included in the value of inventory. In contrast, absorption costing, also called full costing, is a method that applies all direct costs, fixed overhead, and variable manufacturing overhead to the cost of the product.

Detailed explanation-3: -Variable costing treats fixed manufacturing overhead as a period cost. Thus all fixed manufacturing overhead costs are expensed in the period incurred regardless of the level of sales.

Detailed explanation-4: -Marginal costing is a technique that assumes only variable costs as product costs. Absorption costing is a technique that assumes both fixed costs and variable costs as product costs.

Detailed explanation-5: -Absorption costing assigns per unit fixed manufacturing overhead costs to production. This can potentially produce positive net operating income even when the number of units sold is less than the breakeven point. Variable costing income is only affected by changes in unit sales.