Absorption Costing vs Variable Costing

The way fixed overhead expenses are addressed differs between absorption costing and variable costing. Fixed overhead expenses are allocated across all units produced during the time using absorption costing. Variable costing, on the other hand, combines all fixed overhead expenses into a single line item that is reported separately from the cost of items sold or still available for sale.
Absorption costing determines the per-unit cost of fixed overheads, whereas variable costing does not. When computing net income on the income statement, variable costing will result in a single lump-sum expenditure line item for fixed overhead expenses. There will be two types of fixed overhead expenses as a result of absorption costing: those attributable to the cost of goods sold and those attributable to inventory.