Variable costing includes all the variable direct costs in COGS but it excludes direct, fixed overhead costs. Variable costing can provide a clearer picture of per-unit cost and inventory value ...

Absorption costing is a managerial accounting method that captures all costs—both fixed and variable—associated with the manufacture of a particular product.

In practice, neither costing method is right or wrong. Some organizations will find variable costing more effective, while others will prefer full costing.

Variable costing shows full payment for fixed-overhead expenses for the accounting period. Even if you don't sell all the products you make, you must deduct the full cost of fixed overhead.