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
- 1286 reads
