
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.
The unit cost of goods manufactured based on variable costing concept.
(b)
The unit cost of goods manufactured based on absorption costing concept.

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Chapter 6 Solutions
Managerial Accounting
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