ECONOMICS

Detailed explanation-1: -Absorption Costing is not relevant for internal decision making. Absorption Costing is not acceptable for external reporting. Absorption Costing is suitable for planning and control. Operating profit will always be higher under Absorption Costing.

Detailed explanation-2: -Since absorption costing includes allocating fixed manufacturing overhead to the product cost, it is not useful for product decision-making. Absorption costing provides a poor valuation of the actual cost of manufacturing a product. Therefore, variable costing is used instead to help management make product decisions.

Detailed explanation-3: -Correct answer: Option c. both variable and fixed manufacturing costs are considered product costs. Explanation: Under absorption costing, the variable manufacturing costs and the fixed manufacturing overhead are considered as product costs.

Detailed explanation-4: -Absorption costing means that all the manufacturing cost i.e. raw material, direct labor, direct expenses and overheads are absorbed by the units produced. Costs includes fixed as well as variable both.

Detailed explanation-5: -Absorption costing refers to a method of costing to account for all the costs of manufacturing. The management uses this method to absorb the costs incurred on a product. The costs include direct costs and indirect costs. Direct costs include materials, labour used in production.