Why is absorption costing more widely used than variable costing?
A) Variable costing is not allowed for tax purposes, but absorption costing is allowed.
B) Variable costing is not allowed for external reports, but absorption costing is allowed.
C) Absorption costing removes the impact of changing inventory levels from the financial results.
D) A and B

Question

Quizplus · Accepted Answer

Both options A and B are correct. Variable costing cannot be used for tax purposes or external reports, but absorption costing can. Additionally, absorption costing is more widely used because it includes fixed overhead costs in the cost of goods sold, providing a more accurate representation of the true cost of producing a product. This is especially important for companies with significant fixed overhead costs, as variable costing may understate the true cost of production.

Why Is Absorption Costing More Widely Used Than Variable Costing