Absorption costing is the method required by the

US GAAP in financial reporting. However, this method is susceptible to overproduction. Variable costing is an alternative approach without creating an overproduction incentive.

:

1. Why accrual basis accounting may create the overproduction incentive in the absorption costing but not in the variable costing method?
2. As an accountant, what are your recommendations to the executives in terms of using the two methods in the company?