Concept Introduction:
Absorption costing: Absorption costing is one of the methods of calculation of product costs. Under this method, the fixed manufacturing overheads are also considered as part of the product cost with direct costs. The unit product cost includes direct material, direct labor, and variable overhead and allocated amount of fixed overhead. Under this method, the income statement calculates Gross margin and net operating income.
Requirement-1:
To Prepare: The Income Statement using the Absorption Costing
Requirement-2:
To Calculate: The Unit Product Cost and the Cost of inventory using the Absorption costing
Requirement-3:
To Show: The Comparison between the cost of ending inventory using the Absorption costing and Variable costing.
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Horngren's Accounting, The Financial Chapters, Student Value Edition (11th Edition)
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