When units are manufactured equal to units sold, the amount of income under absorption costing will be equal to the amount of income under variable costing.
A financial statement that uses variable costing subtracts variable expenses from revenue to calculate the contribution margin. The contribution margin is the extra profit generated when a product's sales exceed its variable costs. What formula is used to determine variable cost income? A balance sheet that includes variable costs Revenue - Variable Production Expenses - Variable Selling and Administrative Expenses equals Contribution Margin. Contribution Margin - Fixed Manufacturing Expenses - Fixed Selling and Administrative Expenses = Net Profit or Loss. All costs, whether fixed or variable, that are directly associated to production are taken into account when calculating the cost of production in absorption costing. However, only variable costs are taken into account when calculating the cost of production under variable costs.
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