ABC Company produces one product that passes through 4 sequential departments. Each department has a manager that oversees the operations within that department.

The Accountant wants to evaluate the performance of each department by producing department based Profit and Loss statements. Each manager will be held responsible for the profit or loss of their department.

Required:

Would you recommend that the accountant prepare profit and loss statements based on absorption or variable costing?

Justify your answer by critically evaluating the strengths and weaknesses of your chosen method.