The difference between absorption costing and variable costing is the treatment of fixed manufacturing overhead.

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The treatment of fixed manufacturing overhead is the key difference between absorption and variable costing. In absorption costing, fixed manufacturing overhead is included as part of the cost of each unit produced, while in variable costing, fixed manufacturing overhead is treated as a period expense and is not included in the cost of goods sold.

The Difference Between Absorption Costing and Variable Costing Is the Treatment