In determining cost of goods sold, two alternate costing concepts can be used: absorption costing and variable costing.

Absorption Costing

An accounting method that includes all manufacturing costs - direct materials, direct labor, and both variable and fixed overhead - in the cost of a product.

Variable Costing

An accounting method that charges only variable production costs to units produced and treats fixed manufacturing overhead as a period expense.

Cost of Goods Sold

The direct costs attributable to the production of the goods sold by a company.