Variable Costing

1. Variable costing is a method of product costing that includes only variable manufacturing costs (i.e., direct materials, direct labor, and variable manufacturing overhead) as part of product costs. All other costs, including fixed manufacturing overhead, are treated as period costs. Variable costing is not GAAP for financial statement purposes. Method of inventory costing that includes all direct manufacturing costs and variable indirect manufacturing costs as inventory (fixed indirect manufacturing costs are excluded). (Also called direct costing.)