Final answer:
Absorption costing is not the required method for external financial reporting in most countries.
Step-by-step explanation:
Absorption costing is a method of costing that includes all manufacturing costs, both variable and fixed, in the cost of a product. This method assigns a portion of fixed costs to each unit produced, resulting in a higher cost per unit compared to variable costing. While absorption costing is commonly used for internal managerial decision-making purposes, it is not required for external financial reporting in most countries.
External financial reporting typically follows the principles of Generally Accepted Accounting Principles (GAAP) or International Financial Reporting Standards (IFRS). These accounting frameworks generally require the use of either absorption costing or variable costing for certain reporting purposes, such as inventory valuation and cost of goods sold calculations.
However, there is some flexibility in the choice of costing method, as long as the chosen method is consistently applied and properly disclosed in the financial statements.