A questionnaire survey based on the responses of 272 practising UK management accountants who were members of the Chartered Institute of Management Accountants (CIMA) revealed that approximately 81 per cent of the respondent firms used absorption costing techniques to allocate overheads to products. The survey also revealed that absorption costing was used to a greater degree in larger companies. Only 58 per cent of the smaller companies (defined as having less than 50 employees) used absorption costing with the remaining 42 per cent using direct/variable costing.
Questions:
1 Why do you think absorption costing is more likely to be used by larger business?
2 What difficulties might be faced by smaller firms who may want to utilize absorption costing?