Absorption cost is required for:
A)income tax purposes.
B)external financial reporting but not income tax purposes.
C)both external financial reporting and income tax purposes.
D)neither external financial reporting nor income tax purposes.

Question

Quizplus · Accepted Answer

Absorption cost is required for both external financial reporting and income tax purposes as it includes all manufacturing costs (direct materials, direct labor, and manufacturing overhead) in the cost of a product, which is necessary for determining inventory valuation and cost of goods sold. This is required for both financial reporting purposes (under Generally Accepted Accounting Principles) and tax reporting purposes (under the Internal Revenue Code).

Absorption Cost Is Required For