Final answer:
Absorption-costing income refers to the income statement that includes all costs of manufacturing, both fixed and variable. It provides a complete view of the cost of producing goods.
Step-by-step explanation:
The income statement prepared for external parties is referred to as absorption-costing income because it includes all the costs associated with manufacturing a product. This method absorbs both fixed costs and variable costs. Fixed costs, such as rent, do not change with the level of production and are considered sunk costs. On the other hand, variable costs vary with production levels and include costs like materials and direct labor.
Answer (a): It absorbs all costs incurred by a business. This includes direct labor costs, overhead, and all expenses required to produce goods. Absorption costing provides a more comprehensive view of the cost of producing goods than variable costing, which only considers variable costs.