Question

timing is the key in distinguishing between absorption and variable costing. Can anyone explain why this statement important?

Answer 1

Answer:

Absorption costing includes all costs, including fixed costs, related to production.

Variable costing only includes the variable costs directly incurred in production. Companies that use variable costing keep fixed- cost operating expenses seperate from production costs.

The key distinction between variable and absorption costing is the timing of fixed manufacturing overhead becoming an expense. Eventually, fixed overhead is expensed under both product costing systems. Under variable costing, fixed overhead is expensed immediately, when it is incurred. Under absorption costing, fixed overhead is inventoried and not expensed untill the accounting period during which the manufactured goods are sold.