This passage require analysis and breakdown

New manager named Gail who believes she can add few more zeros to her paycheck by deceiving the system and the other two managers who have less financial experience than her. Robert, a new employee who has great work ethics and has been employed for only 6 months, eager to learn and advance in his career is Gail's target to help her with her plan. The current market situation is showing decrease in purchases and gas prices, this has a great impact on the company both Gail and Robert work for, car manufacturing Company.

Gail's plan is to switch from variable to cost absorption and show high sales numbers despite the facts of the decreased marketing sales for the SUVs they manufacture. Variable costing is a methodology that only assigns variable costs to inventory. This approach means that all overhead costs are charged to expense in the period incurred, while direct materials and variable overhead costs are assigned to inventory. (this would be the correct approach within the above marketing situation).

Absorption costing indicates that all of the manufacturing costs have been assigned to (absorbed by) the units of goods produced. In other words, the cost of a finished product includes the following costs: direct materials. direct labor. variable manufacturing overhead.( this would be an ethical option to approach since Gail plans to manipulate the internal report numbers to show a better income than it actually is within the above marketing situation).

Reaction:

Studying this subject by reading a case example helped understand the impacts of both variable and absorption costing. both are very important factors within accounting and should never be taken lightly when switching from one to another. Robert did his research when Gail asked him for help and discovered what she was trying to do, which was unethical and manipulative of a system to make more income that would have caused the company to lose its business.