Principles of compiling income statement by variable cost method and absorption cost method

Absorption cost method and variable cost method are two different cost calculation methods. The main difference between them is that the division of product cost and period cost is different, and the procedures for determining profit and loss are also different. Because traditional accounting requires the preparation of income statement by absorption cost method, absorption cost method is the basis of product cost calculation in financial accounting. Because the change direction of operating profit calculated by variable cost method in different periods is the same as that of sales volume, it is more suitable for production and operation planning and decision-making. The operating profit levels determined by these two methods are sometimes the same, but sometimes different. In order to meet different requirements, it is sometimes necessary to quickly convert the operating profit of the same period under the two cost methods. Therefore, it is of great theoretical and practical significance to analyze the changing law of operating profit difference under these two cost methods.

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