The difference between concepts of Absorption costing and Variable Costing
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... MANAGEMENT ACCOUNTING PART To understand the different concepts of Absorption costing and Variable Costing, it is essential to know and understand about the various types of costs that are a part of the total costing process. Such concepts comprise of: Operating Gearing Operational gearing is the total impact of fixed costs that is laid on the link between the sales and the profit incurred. Operational gearing is increased when the fixed costs are augmented. To understand the concept better, a simple example is described underneath: Company X Company Y Sales 2,000,000 2,000,000 Variable Costs 7,00,000 800,000 Fixed Costs 200,000 100,000 Operating profit 11,00,000 11,00,000 The above example states ...