Grisp Company, a manufacturer with heavy investments in property, plant, and equipment, is presently using absorption costing for both its external and internal reporting. The management of Grisp Company is considering using the direct costing method for internal reporting only. ,lp5 Required:

a What would be the rationale for using the direct costing method for internal reporting?

b Assuming that the quantity of ending inventory is higher than the quantity of beginning inventory, would operating income using direct costing be different from operating income using absorption costing? If so, specify if it would be higher or lower. Discuss the rationale for your answer.