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This video highlights some of the advantages of using Variable Costing.

One of the main advantages of Variable Costing is that operating profit is not affected by fluctuations in the inventory level. With Absorption Costing, a manager can increase operating profit in the current period by increasing production, which defers some of the fixed manufacturing overhead to a future period. With Variable Costing this is not possible, as all fixed manufacturing overhead costs are expensed immediately.

Variable Costing is much easier for managers to understand than Absorption Costing. With Variable Costing, operating profit increases when you sell more units, not simply when you produce more units than you sell.

Another advantage of Variable Costing is that an Income Statement prepared using Variable Costing contains the information necessary to perform Cost Volume Profit analysis (e.g., break-even analysis).