The absorption costing method is required for external financial reporting.

Question

Quizplus · Accepted Answer

Absorption costing is required for external financial reporting as it complies with Generally Accepted Accounting Principles (GAAP) and provides a complete picture of the cost of production including all overhead costs. On the other hand, variable costing is used for internal management decision-making purposes as it helps in analyzing the impact of changes in production volumes and costs on the profitability of the business.

The Absorption Costing Method Is Required for External Financial Reporting