Costing Methods PAper

Feb 3rd, 2012
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University of Phoenix
Course: Business and Management
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In the case of Polk, it would be better to use the absorption method since that method incorporates only the fixed manufacturing overhead that is allocated to the 80,000 units sold. The variable method reports fixed overhead as a period expense, which means that the fixed overhead for this period is calculated on the basis of the 95,000 units produced, if the absorption method is used. The variable method, in contrast, only calculates fixed overhead on the basis of the 80,000 units that were sold. This provides management with a more precise picture of the profitability of the fishing lures. Therefore, the variable costing method is optimal. Each method has benefits. The ability to provide accurate information to management about product costs is the primary benefit of the absorption method. The variable method is mostly beneficial because it provides an output of (net income) that is much closer to the cash flow of the business. This is useful in particular for businesses that

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