1:-- Absorption costing reflects more fixed costs attributable to ending inventory. Absorption costing ensures more accurate accounting ending inventory because the expenses associated with that inventory are linked to the full cost of the inventory still on hand.Absorption costing includes anything that is a direct cost in producing a good in its cost base. Absorption costing also includes fixed overhead charges as part of the product costs. Some of the costs associated with manufacturing a product include wages for employees physically working on the product, the raw materials used in producing the product, and all of the overhead costs (such as all utility costs) used in production.
2:--The only difference between absorption costing and variable costing is in the treatment of fixed manufacturing overhead. Using absorption costing, fixed manufacturing overhead is reported as a product cost. Using variable costing, fixed manufacturing overhead is reported as a period cost. Businesses mainly use the absorption method for external uses, such as creating financial and tax reports. They typically use the variable method for internal uses, such as: Break-even analysis: Companies use break-even analysis to determine the number of units the company needs to sell to earn a profit.