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How Do Variable Costing and Absorption Costing Differ? When Is

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How do variable costing and absorption costing differ? When is net income different under the two methods?


Definitions:

Direct Materials

Definition: Raw materials that can be directly traced to the production of a specific product.

Conversion Costs

The combined costs of direct labor and manufacturing overhead incurred in transforming materials into finished goods.

Materials Cost

The total expense incurred for materials that are used in the production of goods or in the provision of services.

Weighted Average Method

An inventory costing method that assigns an average cost to each item based on the total cost of goods available for sale and the total quantity available.

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