Question

which of the following statements is true regarding variable costing?
multiple choice
it is the required method for external financial reporting.
it includes direct materials, direct labor, and variable overhead costs in product costs.
it is not permitted to be used for managerial reporting.
it treats overhead in the same manner as absorption costing.
it makes it easier to manipulate earnings with changes in production levels.

Explanation:

• Variable costing includes direct materials, direct labor, and variable overhead in product costs. Absorption costing includes fixed overhead too. Variable costing is not required for external financial reporting (GAAP requires absorption costing). It is permitted for managerial reporting. It does not treat overhead like absorption costing (as absorption includes fixed overhead). And it does not make it easier to manipulate earnings with production level changes (absorption costing can do that more due to fixed overhead in inventory).

Answer:

It includes direct materials, direct labor, and variable overhead costs in product costs.