CMA Part 1 | Absorption Variable Costing | LetsLearn Global
Channel: LetsLearn Global
Date: 2021-12-19

CMA Part 1 | Financial Planning, Performance and Analytics | Absorption and Variable costing
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The difference between the absorption and variable costing methods centers on the treatment of fixed manufacturing overhead costs. Absorption costing “absorbs” all of the costs used in manufacturing and includes fixed manufacturing overhead as product costs. Absorption costing is in accordance with GAAP, because the product cost includes fixed overhead. Variable costing considers the variable overhead costs and does not consider fixed overhead as part of a product’s cost. It is not in accordance with GAAP, because fixed overhead is treated as a period cost and is not included in the cost of the product.

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