The variable cost is an expense of the company that usually includes the production process and changes with the time due changing in the production process. For Instance, the variable cost increases or decreases with the increase or decrease in the production volume.
The argument for Variable Costing
The variable costing is unaffected by the inventory change. For Instance, if the cost of the product changes in the production department, it does not create the impact on the sales process and the profitability. In a single accounting cycle, the impact less than other costing methods, and therefore, it has become the main preferences of the cost management (Kinney & Raiborn, 2010).
The argument against Variable Costing
The variable costing is not integrated with the generally accepted accounting principles. This costing method impairs the actual cost of the production. In the auditing process, the auditor may challenge this costing method, which can create issues. Small and large organizations are looking to adopt generally accepted accounting principles, and they may avoid this costing method (Kinney & Raiborn, 2010).
Going Against Variable Costing
In the modern organization, the distortion of the actual production cost cannot be tolerated. It can create many loopholes in the cost of production. However, it seems better and ethical to use generally accepted accounting principles to keep the costing process simple. Moreover, in the auditing process, it becomes easy for the company to justify some changes in the production process. The variable costing opens ways for people to conduct fraudulent activities. Thus, in my opinion, adopting the variable costing is a big risk to this contemporary business, and the management should not use it to avoid financial uncertainties (Kinney & Raiborn, 2010).
Reference
Kinney, M. R., & Raiborn, C. A. (2010). Cost Accounting: Foundations and Evolutions. Cengage Learning.
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