Both variable and absorption costing can be used to calculate unit product cost, an important element in a company's pricing decisions.

a. Using variable costing, only those production costs that vary with volume are included in the unit product cost calculation.

b. Using absorption costing, all product costs-fixed and variable-are part of the unit product cost calculation.

c. The difference in the value of finished goods inventory between variable and absorption costing is a function of the way the methods treat fixed overhead costs.

(1) Variable-costing expenses all fixed costs in the period in which they are incurred.

(2) Absorption costing holds fixed overhead costs in inventory until the products are sold.