Variable Costing

Variable costing is an accounting method that considers only the costs that vary with production when calculating the cost of goods sold. This means it includes direct materials, direct labor, and variable manufacturing overhead, but excludes fixed costs like rent or salaries from product costs. By focusing on costs that change with production levels, variable costing helps businesses understand how changes in production volume affect profitability. It provides clearer insights for decision-making, especially in pricing and budgeting, allowing businesses to analyze how efficiently they produce and sell their products.