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 decision$-$making 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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