Asked by Jocelyn Raygoza on Jul 13, 2024
Verified
Assuming fixed costs remain constant,and a company sells more units than it produces,then income under absorption costing is less than income under variable costing.
Absorption Costing
A financial recording technique that incorporates all costs associated with manufacturing (such as direct materials, direct labor, along with variable and fixed overhead expenses) into the product's cost.
Variable Costing
An accounting method that includes only variable costs - costs that change with production levels - in product costs.
Income
The financial gain received by an individual or a business, typically earned through work, capital investment, or the provision of goods and services.
- Highlight the differences in income reporting and cost treatment between absorption costing and variable costing.
- Understand the effects of production volumes on earnings using both costing approaches.
Verified Answer
Learning Objectives
- Highlight the differences in income reporting and cost treatment between absorption costing and variable costing.
- Understand the effects of production volumes on earnings using both costing approaches.
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