Question

why we use absorption costing rather than variable costing?

if absorbing costung method will allow for over producing then why does CAAP allow this methid?

kindly please write at least longer than 3 paragraphs explaning everything carefully.

please only do this if you can write longer than 3 paragraphs and explain it well. thank you !

please kindly also explain why absorption is GAAP and variable is not, and the advantages and disadventages of the two .

i spelled GAAP as CAAP pleas dont get confused by it!

Answer 1

The absorption cost seems to include all costs, including production, with fixed costs, and variable costing seems to include variable costs involved in direct production. Fixed-cost operating costs are excluded from production costs for companies that use variable costing.

The term absorption value, also known as full cost, requires fixed overhead costs to be allocated to the entire units produced during that period, resulting in the cost of each unit being different from the variable cost, so it also covers all the overhead costs involved. And reports to them. Balance services when compared to net income. In addition, the fixed overhead costs of exploitation pricing appear to be affected in two ways: the prices of such goods are considered as a responsible factor and they are only responsible for the cost of the goods.

Absorption costing provides accurate accounting for net profit only, and especially if all such products are produced at a time when all products are not visible during the accounting period. My guess is that if a company uses cost-exploitation, as well as opposing the burden of keeping up with the ever-changing pricing texts, your only point of view is.

According to the generally accepted accounting feature (GAAP) absorption value is an accounting method that captures the full cost of investing in the product during evaluation. Such a method involves direct costs and indirect costs, and determines the cost of goods.

Advantages: The benefit of using exploitation costs is that they are GAAP compliant, which requires reporting under the Internal Revenue Service (IRS)

With variable costing, the cost of exploitation is not just a direct expense but also a consideration of all the cost of production. Absorption costing includes fixed costs of business income, rental of facilities. The company is useful in managing profitability and determining product prices.

Disadvantages: Due to the absorption cost, the profit level of the business may look better than it actually did in the accounting period. Because the fixed costs are not deducted from the revenue, unless all the products of the company are sold.

Improving operational efficiency does not help: An absorbent value such as variable costing fails to explain the value well. It is difficult to determine the change in the cost over which different product components can be fixed at a fixed cost. Makes it more difficult for company performance to make better decisions.