Asked by Andreas Frånlund on May 02, 2024
Verified
Absorption costing is required under GAAP.
GAAP
Generally Accepted Accounting Principles, which are a collection of commonly-followed accounting rules and standards for financial reporting.
Absorption Costing
An accounting method that includes all manufacturing costs - direct materials, direct labor, and both variable and fixed overhead - in the cost of a product.
- Explain the requirements of GAAP in relation to absorption costing.
Verified Answer
NP
nikoletta petsasMay 06, 2024
Final Answer :
True
Explanation :
Absorption costing is a method of accounting that is required under GAAP (Generally Accepted Accounting Principles) for external financial reporting. It is used to allocate all production costs to the cost of goods sold, including both variable and fixed costs. This method requires the inclusion of fixed production overhead costs in the cost of each unit of product, rather than treating those costs as period expenses.
Learning Objectives
- Explain the requirements of GAAP in relation to absorption costing.
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