![]() ![]() Variable costing is quite commonly used by management to assist with a variety of decisions. Consequently, this methodology is only used for internal reporting purposes. Under variable costing, overhead costs are charged to expense at once, rather than when the related sales occur (which may be in a later period). The frameworks do not favor the use of variable costing, because it does a poor job of matching revenues with all related expenses. There are no uses for variable costing in financial reporting, since the accounting frameworks (such as GAAP and IFRS) require that overhead also be allocated to inventory. Why Variable Costing is Not Used in External Reporting ![]() This approach means that all overhead costs are charged to expense in the period incurred, while direct materials and variable overhead costs are assigned to inventory. Variable costing is a methodology that only assigns variable costs to inventory.
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