Question

What information provided by a variable costing income statement is used in computing the break-even point? Is this information on absorption costing income statement? Explain your answer.

Answer 1

Answer:

Break-even point when Revenue = Total Variable cost + Total Fixed cost. Loss when Revenue < Total Variable cost + Total Fixed cost.

Answer 2

Answer:

Variable costing (also known as direct costing) treats all fixed manufacturing costs as period costs to be charged to expense in the period received. Under variable costing, companies treat only variable manufacturing costs as product costs. The logic behind this expensing of fixed manufacturing costs is that the company would incur such costs whether a plant was in production or idle. Therefore, these fixed costs do not specifically relate to the manufacture of products.

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