Absorption costing is generally used for external financial reports. It treats all costs as product costs regardless of whether they are variable or fixed.

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Absorption costing assigns all costs, including fixed costs, to the products being produced. This method is typically used for external financial reporting since it provides a more accurate representation of the total cost of producing a product. Variable costing, on the other hand, treats fixed costs as period expenses and only assigns variable costs to products. This method is often used for internal management reporting.

Absorption Costing Is Generally Used for External Financial Reports