Absorption and variable costing differ in that

• absorption costing

»- includes all manufacturing costs, both vari¬ able and fixed, as product costs.
>- presents nonmanufacturing costs according to functional areas on the income statement: standard gross margin, adjusted gross mar¬ gin, and operating income.
• variable costing includes only the variable costs of produc¬ tion (direct material, direct labor, and vari¬ able manufacturing overhead) as product costs.
>- presents both nonmanufacturing and manu¬ facturing costs according to cost behavior on the income statement: product contribution margin, total contribution margin, and oper¬ ating income.LO.1