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What is variable cost? Identify two variable costs. When units produced exceed units sold for a...

What is variable cost? Identify two variable costs.

When units produced exceed units sold for a reporting period, would income under variable costing be greater than,equal to, or less than income under absorption costing? Explain.

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Expert Solution

Variable cost:-

a variable cost is a company's expense that wil change in propotion to change in output.it wil increase when production increase and it wil decresae when production decreases.

example for variable cost:-direct material cost,direct labour cost.

When units produced exceed units sold for a reporting period,income under variable costing be less than income under absorption costing.

This difference is because of fixed manufacturing overhead that becomes the part of ending inventory under absorption costing system. The ending inventory absorbs a portion of fixed manufacturing overhead and reduces the burden of the current period. In this way a portion of fixed cost that relates to the current period is transferred to the next period.Under variable costing, the fixed manufacturing overhead cost is not included in the product cost but charged to the income statement of the relevant period in its entirety. Therefore no portion of fixed cost is absorbed by the ending inventory.

ekkarill92 answered 2 years ago
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