
Concept explainers
(a)
Absorption Costing
Absorption costing is compulsory under Generally Accepted Accounting Principles (GAAP) for financial statements circulated to the external users. Under absorption costing, the cost of goods manufactured includes direct materials, direct labor, and
Variable Costing
Managers frequently use variable costing for internal purposes for taking decision making. The cost of goods manufactured includes direct materials, direct labor, and variable factory overhead. Fixed factory overhead treated as period (fixed) expense.
Thecost of finished goods inventory reported on the
(b)
The cost of finished goods inventory reported on the balance sheet under the variable costing concept.

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Chapter 6 Solutions
Managerial Accounting
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