Absorption costing
A)is preferred to variable costing for external reporting purposes, but either method is acceptable.
B)normally results in higher net income than variable costing, and is therefore required for income tax purposes.
C)is not allowed for external reporting purposes.
D)is required under GAAP.

Question

Quizplus · Accepted Answer

Absorption costing is required under Generally Accepted Accounting Principles (GAAP) for external reporting purposes because it includes all manufacturing costs in the cost of a product, including fixed overhead. This method is preferred over variable costing, which only includes variable manufacturing costs, for presenting a more comprehensive view of a company's financial situation.

Absorption Costing