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

I is true because variable costing aligns with the concept of contribution margin, which is pivotal in cost-volume-profit analysis. III is true because companies often use absorption costing for external reporting (as required by GAAP) and variable costing for internal decision-making processes. II is incorrect because GAAP requires absorption costing for external financial reporting, not variable costing.

Consider the Following Statements About Absorption Costing and Variable Costing