Chapter 19, Problem 3DQ

To determine

Absorption Costing:

In absorption costing all the costs of production are absorbed by or assigned to all the units of production. In simple words, all the direct costs or overheads costs incurred while manufacturing the products whether variable or fixed will be included in the final product cost.

Variable Costing:

Variable costing is also known as marginal costing as it is dynamic in nature, i.e., cost of manufacturing changes proportionally with the change in the units of production. Variable costing does not consider fixed costs; it only acknowledges variable costs which have a direct association with production.

To explain: Effects of units produced exceed units sold for a reporting period.