Why Is Absorption Costing More Widely Used Than Variable Costing

question 113

Multiple Choice

Why is absorption costing more widely used than variable costing?

• A) Variable costing is not allowed for tax purposes, but absorption costing is allowed.
• B) Variable costing is not allowed for external reports, but absorption costing is allowed.
• C) Absorption costing removes the impact of changing inventory levels from the financial results.
• D) A and B

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Definitions:

Production Budget

An estimate of the total units to be produced in a given period, considering forecasted sales and desired inventory levels.

Cash Receipts

The collection of money, including currency, checks, and electronic transfers, by a business.

Sales Budget

An estimate of future sales, often detailed in terms of volume and revenue, used for planning and controlling a business's operations.

Cash Collections

The process of gathering all cash received from sales, receivables, and other sources during a given period.