Most appropriate use for absorption costing?

Answer 1

It is a costing technique where all normal costs whether it is variable or fixed costs are charged to cost units produced.

Unlike marginal costing which take the fixed cost as period cost.

It recognizes the importance of fixed costs in production;

• This method is accepted by Inland Revenue as stock is not undervalued;

• This method is always used to prepare financial accounts;

• When production remains constant but sales fluctuate absorption costing will show less fluctuation in net profit and

• Unlike marginal costing where fixed costs are agreed to change into variable cost, it is cost into the stock value hence distorting stock valuation.