Describe the Basic Differences Between Absorption and Variable Costing

question 87

Essay

Describe the basic differences between absorption and variable costing.Why are managers sometimes motivated to produce too much inventory when income is computed under an absorption costing system?

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Definitions:

Stagflation

An economic condition characterized by slow economic growth, high unemployment, and rising prices (inflation).

Economy

The organized system of human activity involved in the production, consumption, and distribution of goods and services in a particular geographic or political area.

Economic Contraction

A decline in national output as measured by GDP, often marked by a decrease in spending, investment, and general economic activity.

Aggregate Supply

The total supply of goods and services that firms in an economy are willing and able to sell at a given overall price level in a given time period.