Absorption costing is required by

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Absorption costing is required by both external financial reports and income tax reports. Under absorption costing, all direct and indirect manufacturing costs are assigned to the products, which are then reflected in the cost of goods sold on the income statement. This method is preferred by external users of financial statements, such as investors and creditors, because it provides a more comprehensive view of the cost of producing goods. Additionally, the IRS requires businesses to use absorption costing for tax purposes.

Absorption Costing Is Required by