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This video explains the difference between Absorption Costing and Variable Costing in the context of managerial accounting. The key functional difference between these two methods is the way in which fixed overhead is classified, and the video provides an example to illustrate how this difference leads to substantial discrepancies in the calculation of product costs, cost of goods sold, and profitability. The video then summarizes the benefits and drawbacks of Absorption Costing and Variable Costing.