Variable (Direct) and Absorption Costing

• Production and Sales

  P = S

  Net Income

  AC = VC

  Inventories

  BE = BB
• Variable costing is also known as direct costing.
• Production and Sales

  P > S

  Net Income

  AC > VC

  Inventories

  BE > BB
• Production and Sales

  P < S

  Net Income

  AC < VC

  Inventories

  BE < BB
• Standard Fixed Overhead Rate = Budgeted Fixed Overhead ÷ Normal Capacity
• Standard Fixed Expenses Rate = Budgeted Fixed Expenses ÷ Normal Capacity