Absorption Costing

question 22

Multiple Choice

Absorption costing

• A)is preferred to variable costing for external reporting purposes, but either method is acceptable.
• B)normally results in higher net income than variable costing, and is therefore required for income tax purposes.
• C)is not allowed for external reporting purposes.
• D)is required under GAAP.

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Definitions:

External Users

Individuals or entities outside a company, such as investors, creditors, regulators, and customers, who use the company's financial information to make decisions.

Accounting

The systematic process of recording, measuring, and communicating financial information about economic entities.

Recording

The act of documenting financial transactions in the books of accounts as part of the accounting process.