Absorption and Direct Costing

Question 1

Absorption costing (also called accrual costing) assigns all three factors of production to inventory which are:

Answer 1

1) Direct material
2) Direct labor
3) Variable and fixed manufacturing overhead

For internal purposes, many companies use contribution format.

The ONLY Difference and variable and absorption costing is the treatment is fixed manufacturing costs

Absorption costing is requested for external reporting purposes

Question 2

Absorption costing uses the GM format income statement?

Answer 2

TRUE

Variable costing uses the contribution margin format instead