Question

What is the difference between absorption and variable/contribution margin income statement?

Answer 1

Ans.
1	In absorption costing method, the unit product cost is the sum of all manufacturing costs per unit
	whether it is fixed or variable.
	In variable costing method, the unit product cost is the sum of only variable
	manufacturing costs per unit
2	In The Absorption costing income statement costs are seperatly mentioned based on their cost
	function whether it is product or period.
	All product costs (fixed and variable) are subtrated from sales to calculate gross profit then all
	period costs (fixed and variable) are subtracted from gross profit to calculate net income under
	absorption costing method.
	In The variable format income statement costs are seperatly mentioned based on their cost
	type whether it is fixed or variable.
	The behavior of costs is generally variable and fixed. In a contribution format income statement,
	Total Variable costs are subtracted from Sales and the difference is known as contribution margin
	then Total Fixed costs are subtracted from contribution margin to calculate Net income.
3	Absorption costing is also known as traditional costing and Variable costing is also known as
	contribution costing.