Absorption costing is the required method in use in most modern countries for reporting external inventory costs in the financials. Management often prefers this
method to other conventional inventory tracking and measurement systems as it gives them a better feel for the true costs of inventory that is being carried.
Taking into consideration the benefits of absorption costing and management’s preferences, why do you feel that absorption costing might be a good choice for internal
inventory measurement? Select one example for use in your explanation as to why this method might or might not be the best route to go for inventory.
Respond to this… I believe that absorption costing will give me a better feel, for the real cost of what was produced within a period of time for the company. Overhead
costs are allocated to each unit produced during a given period of time. If I were a manufacturing company that produced doors, I would at the end of the month divide
all of my overhead costs into the number of doors produced. This would give me an accurate per door cost when determining their over profit margin for the company.
Using absorption costs, I feel would give me, as a manager, knowledge to make good decisions.
Reference
Johnston, K. (2016). Advantages & Disadvantages of Using Absorption Vs Variable Costing. Retrieved 20 July, 2016, from http://smallbusiness.chron.com/advantages-
disadvantages-using-absorption-vs-variable-costing-34282.html
