The Table That Follows Denotes Selected Characteristics of Absorption Costing

question 9

Essay

The table that follows denotes selected characteristics of absorption costing and/or variable costing.
$\begin{array} { | l | l | l | } \hline { \text { Characteristic } } & \text { Absorption Costing } & \text { Variable Costing } \\\hline \text { Product cost: } & & \\\hline \text { Direct materials } & & \\\hline \text { Direct labour } & & \\\hline \text { Variable manufacturing overhead } & & \\\hline \text { Fixed manufacturing overhead } & & \\\hline \text { Period cost: } & & \\\hline \text { Variable selling and administrative cost } & & \\\hline \text { Fixed selling and administrative cost } & & \\\hline \text { Fixed manufacturing overhead } & & \\\hline \text { Income statement disclosure/ andience: } & & \\\hline \text { Gross margin } & & \\\hline \text { Contribution margin } & & \\\hline \text { Lower net income when inventories rise } & & \\\hline \text { External financial-statement users } & & \\\hline\end{array}$ Required:
Evaluate each product-cost, period-cost, and income-statement/disclosure characteristic and determine whether it relates to absorption costing, variable costing, or both methods. Place an "X" in the proper column.

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Definitions:

Substitute Products

Goods or services that can be used in place of each other, offering a choice to consumers.

ATC Curve

Short for "Average Total Cost Curve," it represents the average total cost per unit of output produced, showing how cost varies with changes in output levels.

Maximizing Profits

The process of adjusting production and operational processes to achieve the highest possible profit margin.

Minimizing Losses

Strategies or actions taken to reduce the amount of money or resources wasted or not gained in a business operation or investment.