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REPLY Chapter 6, Question 4

Why would managers prefer variable costing over absorption costing?

Managers prefer variable costing because it provides a clearer understanding of cost behavior and how production levels impact profits. It aligns with the contribution margin concept, aiding pricing and break-even analysis. Variable costing is more suitable for short-term performance assessment, as it doesn't allocate fixed overhead costs to unsold products. This flexibility makes it valuable for decision-making, particularly in industries with changing demand. In contrast, absorption costing may be favored for external financial reporting to comply with accounting standards.

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