Question

In: Accounting

Which income statement can be manipulated easier, absorption costing or variable costing and why?

Which income statement can be manipulated easier, absorption costing or variable costing and why?

Solutions

Expert Solution

answer :

Absorption costing statement can be manipulated easier.

explanation

Net income under absorption is higher than the variable costing because fixed manufacturing overhead cost diferred in ending inventory when the units sold is less than the units produced .

if the units produced and sold is equal - net income under both method are the same

if there is ending inventory there is a difference in thier net income of absorption costing and variable costing

variable costing consider all variable manufacturing costs for calculating the unit product cost ,where as the absorption costing consider all manufacturing costs for calculating the unit product cost

Absorption costing reports higher net income (when units sold is less than produced) , so that the absorption costing reports higher ending inventory in the balance sheet

Variable costing method reports the same operating income when units sold and produced are different or equal

ekkarill92 answered 2 years ago
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