... products under variable costing but is included in the cost of products under absorption costing. In other words, variable costing signifies that fixed factory overhead in not inventoried. In contrast, absorption costing indicates that inventory values include fixed factory overhead. Due to the consideration of fixed overhead or not, it will lead to the different stock valuation of the two methods. Furthermore, as the difference of stock value, so the result of net profit from the two approaches will be different. I want to discuss and compare the results of the two methods through following illustration: The following information is available for periods 1-3 for a company that produced a single product: (£) Unit selling price 10 Unit variable cost 6 Fixed cost for each period 300 Under absorption costing, fixed production overhead is absorbed at the rate of £ 2 per unit produced every month. Period 1 Period 2 Period 3 Units sold ...

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