Cost accounting is an accounting process that measures and analyses the costs associated with products, production and projects so that correct amounts are reported on financial statements. Cost accounting aids in decision-making processes by allowing a company to evaluate its costs. Some types of costs in cost accounting are direct, indirect, fixed, variable and operating costs.
Absorption costing is a costing system which treats all costs of production as product costs, regardless whether they are variable or fixed. In absorption costing method the main emphasis is on direct and indirect cost.
Variable costing is a costing system under which those costs of production that vary with output are treated as product costs. In variable costing method the main emphasis is on variable and fixed cost.
The heart of the difference between variable costing and absorption costing for financial accounting is the accounting for fixed manufacturing costs. All variable manufacturing costs are product costs under the both methods. But fixed manufacturing costs are treated differently. Under variable costing, fixed manufacturing costs are treated as expenses of the period. Under absorption costing, fixed manufacturing costs are product costs. They are then deducted as the costs of goods sold when sales occur.
Format of Absorption Costing Income Statement Format of Variable Costing Income Statement

Sales xxx
Less: Cost of goods sold xxx
Gross margin xxx
Less: Selling & Administrative expenses xxx
Net Operating income/loss xxx Sales xxx
Less: Variable Cost