Chapter 6, Problem 2AA

To determine

(1)

Absorption costing is a process that the company uses to allocate all types of costs on all products, and then calculates the final price of the products.

Variable costing considers only the variable costs and it is not used for external purpose. However, the company uses this method for their own internal management.

To compare: Income under variable costing and absorption costing for Company A.

To determine

(2)

Absorption costing is a process that the company uses to allocate all types of costs on all products, and then calculates the final price of the products.

Variable costing considers only the variable costs and it is not used for external purpose. However, the company uses this method for their own internal management.

To compare: Income under variable costing and absorption costing for Company G.

To determine

(3)

Just-in-time Inventory System: It means increasing the efficiency of the inventory system by aligning the raw material required from suppliers directly to the material required in the production. This reduces the inventory costs.

To compare: Income under absorption and variable costing if ‘Just-in-time’ (JIT) inventory system is used.