variable costing
Financial Dictionary — Cost Accounting
Definition
Variable costing is a method of calculating costs in which inventory is carried with direct costs and variable factory expenses to determine the income statement. For example, workers’ wages for unsold units are charged to inventory as units under production.
Use cases, Example & Why it matters
Use cases
- Used in product/service costing, budgeting, and variance analysis.
- Used to support pricing decisions and profitability analysis by cost behavior and drivers.
- Used to support pricing decisions and profitability analysis by cost behavior and drivers.
Example
- Example: The costing team uses **variable costing** to allocate costs and analyze margins by product line.
Why it matters
- Why it matters: Improves cost accuracy, supports better pricing and budgeting, and strengthens performance measurement.