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Dear Mr Moffat
Can you tell me please why GAAP accept absorption costing for financial statements but it doesn’t accept variable costing for financial statements ? Thanks in advance.
GAAP only applies in the US. For ACCA exams it is IFRS’s.
However, the rule about absorption costing is the same for International Standards, and I will answer you even though the reason is not relevant for Paper MA (the reason is only relevant for Paper FA).
IAS 2 states that the cost of inventory should include all costs of production, whether they are fixed or variable, which is effectively demanding absorption costing.
You are welcome.