Factors Affecting The Variable Costing System

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One positive aspect of adopting the variable costing system that was described in the text, is some of the staff members do not seem to understand absorption costing, the current costing method. When using absorption costing, income is affected by sales volume and production volume changes. Variable costing may be more suitable for management who do not have a financial background. Because management needs to be able to make informed decisions, it is imperative that the financial information provided to them is meaningful.
Another argument in the case for using variable costing is that it could possibly eliminate time-consuming efforts required to allocate fixed overhead. This is partially true in that the variable costing method only assigns variable costs to products and allocating fixed overhead to individual products is not necessary. However, variable costing is not accepted by generally accepted accounting principles, so the time saved may not be as much as expected due to the need of another set of statements.
According to the case, cost control can be improved with the adoption of variable costing. Although costs can also be controlled when using absorption costing, it is easier to distinguish on the income statement which costs are variable and which costs are fixed when using the variable costing method. Since variable costs and fixed costs are controlled in different ways, it is useful to be able to analyze the costs separately in order to control

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