Variable costing is more compatible with cost-volume-profit analysis than is absorption costing.

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Variable costing separates fixed and variable costs, making it easier to analyze the effects of changes in sales volume on contribution margin and net income, which are key components of cost-volume-profit analysis. Absorption costing, on the other hand, includes fixed manufacturing overhead as a product cost, which can distort contribution margin calculations and make cost-volume-profit analysis more difficult. Therefore, variable costing is considered more compatible with cost-volume-profit analysis.

Variable Costing Is More Compatible with Cost-Volume-Profit Analysis Than Is