What characterizes direct costing?

Direct costing, also known as variable costing, focuses solely on costs that vary with production levels, which includes only variable costs in product costs. This method allows managers to assess how changes in production volume affect overall profitability by isolating the costs directly associated with the manufacturing of products, such as raw materials and direct labor.

In contrast to full costing methods, which allocate both fixed and variable manufacturing costs to products, direct costing provides a clearer picture of how changes in production affect financial performance. This can be particularly useful for internal management decision-making, as it helps identify the contribution margin and informs pricing strategies and cost control measures.

The other options involve aspects of full costing or incorrect interpretations of the costs included in product costing. Understanding these distinctions is crucial for analyzing financial data and making informed managerial decisions.