What is an important characteristic of variable costing?

Variable costing is a method of costing that includes only variable manufacturing costs in the product cost. This means that costs such as direct materials, direct labor, and variable manufacturing overhead are considered in the product cost, while fixed manufacturing costs are treated as period costs and are expensed in the period in which they are incurred. This approach allows managers to determine the contribution margin, which is sales revenue minus variable costs, facilitating better decision-making regarding pricing, production levels, and profitability analysis.

Understanding this characteristic of variable costing is important for managerial accounting as it helps in internal decision-making processes, including budgeting and forecasting, as well as in assessing operational efficiency and performance.