Mastery Problem: Variable Costing for Management Analysis
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Absorption vs Variable
Operating income is one of the most important items reported by a company. Depending on the decisionmaking needs of management, operating income can be determined using absorption costing or variable costing.
Select whether the following characteristics are most often associated with absorption costing or variable costing.
Required under generally accepted accounting principles GAAP
Absorption CostingVariable Costing
Often used for internal use in decision making
Absorption CostingVariable Costing
Cost of goods manufactured includes only variable manufacturing costs
Absorption CostingVariable Costing
Used in reports prepared for external users
Absorption CostingVariable Costing
Fixed factory overhead costs are not part of cost of goods manufactured
Absorption CostingVariable Costing
Both fixed and variable factory costs are included in cost of goods sold and inventory
Absorption CostingVariable Costing
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