Variable costing or Direct costing is a costing method that includes only variable manufacturing costs — direct materials, direct labor and variable manufacturing overhead in the cost of a unit of product. Variable costing is also referred to as direct costing.
Under variable costing, only
Variable costing or Direct costing is a costing method that includes only variable manufacturing costs — direct materials, direct labor and variable manufacturing overhead in the cost of a unit of product. Variable costing is also referred to as direct costing.
Under variable costing, only those costs of production that vary directly with output are treated as product costs. Fixed manufacturing overhead is not treated as product cost under this method.
Rather, it is treated as a period cost and, like selling and administrative expenses, it is charged against revenue in the period it is incurred.
Under variable costing, the cost of production will be as follows:
Cost of production = Direct Materials + Direct labor + Direct Expense + Variable Factory Overhead.
Under variable costing, only those manufacturing costs that vary with output are treated as product costs. This would usually include direct materials, direct labor, and the variable portion of manufacturin