Absorption costing measures contribution to profit as:
A)Sales less unit-level costs spent of goods sold.
B)Sales less variable costs of goods sold.
C)Sales less absorption cost of goods sold.
D)Sales less all costs including operating expenses.

Question

Quizplus · Accepted Answer

Absorption costing measures contribution to profit by subtracting the absorption cost of goods sold from sales. Absorption cost includes all of the manufacturing costs, both fixed and variable, and allocates them to each unit of product. This method of costing is used for external reporting purposes and is required by generally accepted accounting principles (GAAP). Therefore, choice C, sales less absorption cost of goods sold, is the correct answer.

Absorption Costing Measures Contribution to Profit As