Net income under variable costing is closely tied to changes in sales levels.

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Under variable costing, net income is calculated as the contribution margin (sales revenue minus variable costs) minus fixed costs. Since variable costs are directly tied to changes in sales levels, net income under variable costing is also closely tied to changes in sales levels. This is in contrast to absorption costing, where fixed manufacturing overhead costs are included in the calculation of net income, creating a disconnect between changes in sales levels and net income.

Net Income Under Variable Costing Is Closely Tied to Changes