Maine Lobster Company is a privately held company that buys lobsters from local fishermen and then delivers them to restaurants in several of Maine’s larger cities. The owners use variable costing income statements, but one owner’s daughter, who just started taking accounting classes at the local university, suggested that absorption income statements meet GAAP and, therefore, should be used.
A. Explain the difference between absorption and variable income statements.
B. Provide possible reasons why the company uses variable costing income statements.
C. Provide possible benefits to the company from using an absorption costing income statement.
D. What type of statement would you recommend for Maine Lobster Company? Why?
E. What additional information about Maine Lobster Company would you like to have to improve your recommendation in part (D)?