Question

which of the following is a disadvantage of using variable costing?

A) two sets of accounting records must be maintained

B) inventory values tend to be overstated

C) CVP relationships are more difficult to determine than under absorption costing

D) per customer or per product contribution margin is obscured

E) all of the above

Answer 1

Option (A) is correct.

Variable costing only considers variable costs to determine the product cost but it is not useful for all purposes, since fixed costs are treated as periodic cost in such costing method. It is used for decision making generally. However, absorption costing includes variable as well as fixed costs to determine the cost per unit more accurate, that enables to determine cost of inventory and costs of goods sold more accurately. Hence, absorption costing approach need to be followed even if variable costing adopted.