GAAP requires the use of the absorption costing method for financial reporting.

Question

Quizplus · Accepted Answer

GAAP (Generally Accepted Accounting Principles) mandates the use of the absorption costing method for external financial reporting because it includes all manufacturing costs (direct materials, direct labor, and both variable and fixed manufacturing overhead) in the cost of a product, which is necessary for accurately reporting the cost of goods sold and inventory valuation.

GAAP Requires the Use of the Absorption Costing Method for Financial