Variable Costing vs. Absorption Costing: Consistency with CVP Analysis

The statement is correct. Variable costing and Cost-Volume-Profit (CVP) analysis are consistent because both treat fixed costs as a lump sum. In variable costing, fixed costs are treated as a period expense and are not allocated to units produced. This means that fixed costs remain constant regardless of the number of units produced or sold. Similarly, in CVP analysis, fixed costs are treated as a lump sum and are not allocated to units. CVP analysis focuses on the relationship between costs, volume, and profit, without considering the allocation of fixed costs to individual units.

On the other hand, absorption costing is inconsistent with CVP analysis because absorption costing treats fixed costs on a per-unit basis. In absorption costing, fixed costs are allocated to individual units produced, creating a per-unit fixed cost. This can distort the analysis in CVP as the per-unit fixed cost changes with the number of units produced, affecting the contribution margin and break-even point calculations.

Overall, variable costing and CVP analysis provide a more accurate representation of the relationship between costs, volume, and profit, while absorption costing may introduce inconsistencies in the analysis due to the allocation of fixed costs on a per-unit basis.