4. The advantages of using the variable costing method for internal report-
ing purposes include the following:
● Variable costing aids in forecasting and reporting income for decision-
making purposes.
● Fixed costs are reported in total amount, thereby increasing the op-
portunity for more effective control of these costs.
● Profits vary directly with sales volume and are not affected by
changes in inventory levels.
● Analysis of cost-volume-profit relationships is facilitated and man-
agement is able to determine the break-even point and total profit for
a given volume of production and sales.
The disadvantages of using the variable costing method for internal re-
porting purposes include the following:
● Variable costing lacks acceptability for external financial reporting and
cannot be used for income taxes in the United States. As a result, ad-
ditional record keeping costs may be required.
● It may be difficult to determine what costs are fixed and what costs
are variable.
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