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6 May, 2015 - 17:10

In variable costing, also known as direct costing, all the variable cost, and only variable costs, are assigned to cost of goods. A manufacturing margin (or marginal income) is derived by subtracting this variable cost from sales, and the factory overhead together with other selling and administrative expenses are deducted from it to arrive at net income. Variable costing reveals the effect of changing volume of production on net income.

Sales minus Variable costs = manufacturing margin (or marginal income)

Manufacturing margin

minus   factory overhead

minus   other selling and administrative expenses


Net income