Answer:
Short report on the evaluation of Absorption Costing and Relevant Costing
FROM : Accounting Student
TO : Accountant
DATE : Tuesday 19 January 2021
RE : Evaluation of Absorption Costing and Relevant Costing
1. Product Cost :
Absorption Costing = Variable manufacturing costs + Fixed manufacturing costs
Relevant Costing = Variable manufacturing costs only
2. Period Costs :
Absorption Costing = All Non- Manufacturing Costs
Relevant Costing = All Non- Manufacturing Costs + Fixed Manufacturing Costs
3. Gross Profit / Contribution
Absorption Costing = Calculates Gross Profit (Sales - Production Costs)
Relevant Costing = All Non- Manufacturing Costs + Fixed Manufacturing Costs
Signed
Accounting Student
Date 1/19/2021
Explanation:
Absorption costing is also known as full costing. All manufacturing costs are included in the Product Cost. This is most suitable for external reporting and acceptable for IFRS and GAAP.
Relevant costing is also known as Direct or Variable costing. Only Variable manufacturing costs are included in Product Costs. This costing method is for internal purposes and is used by Managers for decision making.
