What type of costing includes only the variable overheads?

Marginal costing is the method that includes only variable overheads, alongside direct materials and direct labor, when calculating the cost of a product. This approach focuses on the costs that change with the level of production, emphasizing the concept of contribution margin, which is the amount available to cover fixed costs and generate profit after variable costs have been deducted.

In marginal costing, fixed overheads are treated as period costs and are not allocated to individual units of production. This allows businesses to analyze how changes in production volumes affect profitability in a straightforward manner. When making decisions, such as pricing, product lines, or assessing the impact of increased output, marginal costing provides a clear view of how variable costs behave and impact overall financial performance.

The other methods presented have different characteristics. Standard costing involves setting predetermined costs for products, which can encompass both fixed and variable overheads. Job costing tracks costs per individual job or project and typically includes all costs associated with production. Absorption costing, on the other hand, allocates both fixed and variable overheads to the cost of products, which can obscure the clarity of cost behavior regarding production decisions.