Question

When does variable costing and absorption costing give similar result ? What makes the result of the two methods differ? Give a short explanation

Answer 1

1) When does variable costing and absorption costing give similar result ?

Variable costing and Absorption costing give similar result when goods produced and sold are same during the year.

2) What makes the result of the two methods differ?

Variable costing and Absorption costing differs in recognizing the Fixed Manufacturing Overhead Cost.

1) Variable Costing recognizes total fixed manufacturing overhead costs in its calculations

2) But Absorption Costing considers fixed manufacturing overhead costs relating to goods sold rather than total fixed manufacturing overhead costs.

3) Differences will arise only when number of goods produced and sold during the year is different.