Question:
Supporters of direct costing have contended that it provides management with more useful accounting information. Critics of direct costing believe that its negative features outweigh its positive attributes.
(a) Describe direct costing. How does it differ from conventional absorption costing?
(b) List the arguments for and against the use of direct costing.
(c) Indicate how each of the following conditions would affect the amounts of net income reported under conventional absorption costing and direct costing, assuming a standard costing system is used.
(1) Sales and production are in balance at standard volume.
(2) Sales exceed production.
(3) Production exceeds sales.