variable costing

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.

Variable costing carries inventory at variable production costs (direct materials, direct labor, variable overhead). Fixed manufacturing overhead is expensed in the period.

- Used in product/service costing, budgeting, and variance analysis.
- Used to support pricing decisions and profitability analysis by cost behavior and drivers.

- Example: The costing team uses **variable costing** to allocate costs and analyze margins by product line.

- Why it matters: Improves cost accuracy, supports better pricing and budgeting, and strengthens performance measurement.