Absorption and Variable Costing Are Two Different Methods of Measuring

question 44

Essay

Absorption and variable costing are two different methods of measuring income and costing inventory.
Required:
A. Product costs are defined as costs associated with the manufacturing process. How does the operational definition of product cost differ between absorption costing and variable costing?
B. An absorption-costing income statement will report gross profit or gross margin whereas a variable-costing income statement will report contribution margin. What is the difference between these terms?

---

Definitions:

Cue-dependent Forgetting

The inability to recall information without memory cues, suggesting that forgetting may occur when retrieval cues are not present.

Proactive Interference

A psychological phenomenon where older memories hinder the recall of newer memories.

Decay

The process of gradual deterioration or the breakdown of organic matter through natural physical or chemical processes.

Retroactive Interference

A memory phenomenon where new information interferes with the ability to recall old information.