Variable costing
A method that assigns variable manufacturing costs to a product and treats fixed manufacturing overhead as a period cost.
Cost accounting glossary
Variable costing assigns variable manufacturing costs to a product and treats fixed manufacturing overhead as a period cost.
This definition distinguishes variable costing from absorption costing and from the broader idea of a variable cost. It does not calculate, allocate, classify, record, model, validate, or decide any cost, inventory, price, margin, profit, financial-statement, tax, or operating matter.
Variable costing, also called direct costing or marginal costing, is a cost-accounting method in which variable manufacturing costs—such as direct materials, direct labor, and variable overhead—are assigned to a product, while fixed manufacturing overhead is expensed in the period incurred. Under the method, fixed manufacturing overhead is not included in inventory value. Read the OpenStax explanation.
Three related terms
Related terms do not determine an accounting treatment.
Variable-costing language may appear beside absorption costing and variable costs. The terms can clarify a discussion without determining a cost allocation, inventory value, financial statement, tax position, reporting method, accounting policy, or business decision.
Absorption costing
A method that includes variable and fixed manufacturing overhead in product cost. OpenStax describes it as distinct from variable costing.
Variable cost
A cost whose total amount changes with activity or output. A variable cost is a cost-behavior concept; variable costing is a method.
Why context matters
A method label does not determine a financial result.
The important distinction
A glossary defines the method. It does not produce an accounting result.
OpenStax describes variable costing by its treatment of variable manufacturing costs and fixed manufacturing overhead. That description provides vocabulary, not a calculation, allocation, financial statement, inventory valuation, tax position, accounting judgment, or decision for a specific organization.
Method, cost behavior, context
A term does not calculate or validate a cost.
A cost discussion may involve materials, labor, overhead, inventory, sales, costs of goods sold, margins, financial statements, and tax reporting. This page does not calculate, allocate, classify, record, reconcile, validate, or decide any of them.
A source note
Shared terminology can help name a cost-accounting question.
OpenStax distinguishes variable costing and absorption costing by their treatment of fixed manufacturing overhead. That supports a plain-language definition; it does not resolve an accounting, financial, tax, reporting, inventory, pricing, or operational question.
Keep the definition and the accounting conclusion separate.
An educational source can explain a cost-accounting term. It cannot determine a cost, allocation, inventory valuation, reporting basis, accounting policy, tax treatment, regulatory result, margin, profit, price, or business decision.
Glossary boundary: This page does not calculate, allocate, classify, record, reconcile, validate, model, analyze, estimate, forecast, report, audit, select, recommend, or decide any cost, overhead, inventory, product, price, margin, profit, financial statement, tax, accounting, manufacturing, procurement, or operational matter.
What this glossary does not decide
This educational definition does not determine any accounting, financial, tax, legal, regulatory, reporting, inventory-valuation, cost-allocation, costing-method, pricing, margin, profitability, manufacturing, procurement, inventory, quality, food-safety, compliance, operational, or business status; calculate, allocate, classify, record, reconcile, validate, model, analyze, estimate, forecast, report, audit, select, recommend, or decide any cost, overhead, inventory, product, price, margin, profit, financial statement, tax, accounting treatment, method, policy, record, payment, or transaction; or provide accounting, financial, tax, legal, regulatory, business, manufacturing, procurement, inventory, or operational advice.
Source note
References for this definition
This source supports the terminology on this page. It is not a substitute for an organization’s own records, policies, financial statements, contracts, qualified advisers, or applicable requirements.
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