Absorption Costing And Variable Costing
Absorption Costing and Variable Costing Methods—Benefits
Management considers fixed and variable costs to calculate product cost under the absorption costing method. Moreover, businesses use absorption costing (for reporting purposes) to adhere to (GAAP) generally accepted accounting principles (Kimmel, Weygandt, & Kieso, 2011). In contrast to absorption costing, management considers fixed costs as period costs (rather than product costs) in variable costing. As a result, product costs refers to variable costs. In this way, sales (rather than production) affect net income.
Reference
Kimmel, P. D., Weygandt, J. J., & Kieso, D. E. (2011). Accounting: Tools for business decision making (4th ed.). NJ: John Wiley & Sons.
Management considers fixed and variable costs to calculate product cost under the absorption costing method. Moreover, businesses use absorption costing (for reporting purposes) to adhere to (GAAP) generally accepted accounting principles (Kimmel, Weygandt, & Kieso, 2011). In contrast to absorption costing, management considers fixed costs as period costs (rather than product costs) in variable costing. As a result, product costs refers to variable costs. In this way, sales (rather than production) affect net income.
Reference
Kimmel, P. D., Weygandt, J. J., & Kieso, D. E. (2011). Accounting: Tools for business decision making (4th ed.). NJ: John Wiley & Sons.