Consider the following statements about absorption costing and variable costing: I.Variable costing is consistent with contribution reporting and cost-volume-proﬁt analysis. II.Variable costing must be used for external ﬁnancial reporting. III.A number of companies use both absorption costing and variable costing. Which of the above statements is (are) true?
A)I only.
B)II only.
C)III only.
D)I and II.
E)I and III.

Question

Quizplus · Accepted Answer

Statement I is true as variable costing separates fixed and variable costs and only considers variable costs in determining contribution margin. This makes it consistent with cost-volume-profit analysis.

Statement II is false as absorption costing is commonly used for external financial reporting as it includes all manufacturing costs in inventory and cost of goods sold.

Statement III is true as some companies use both absorption costing and variable costing for different purposes such as internal decision-making and external reporting.

Consider the Following Statements About Absorption Costing and Variable Costing