What is Super-Variable Costing?

Super-variable costing only considers totally variable costs to be part of the cost of inventory. All other costs are charged to expense in the period incurred. This typically means that only direct materials are included in the cost of inventory. The result of this approach is that nearly all costs of production are charged to expense at once, resulting in lower reported profits in the short term.

Super-variable costing is only usable for internal reporting purposes, since it is not allowed under GAAP or IFRS. For external reporting purposes, factory overhead must also be allocated to the cost of inventory (which is called absorption costing). Because of this issue, super-variable costing has seen limited application.