Superior method for external reporting

Reference no: EM13140153

Your friend has started a new manufacturing business and tells you that he plans to use variable costing to evaluate the performance of the company. He doesn't understand why under the Generally Accepted Accounting Principles (GAAP) he is required to use absorption costing. Explain to your friend why absorption costing is required under GAAP and why that is the superior method for external reporting.

Reference no: EM13140153

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