Question

Assume that Samsung (Samsung.com) is considering offering a service similar to Apple’s iTunes music download store. However, instead of developing the division internally, Samsung is considering buying a company that already offers such services.

Required

Would absorption or variable costing be most useful to Samsung in evaluating whether to acquire an existing business that provides services similar to iTunes? Explain.

Short answer

The company should useabsorption costing.

Step-by-step solution

Meaning of Cost Accounting

Cost accounting is one of the branches of accounting that aims to capture the various costs incurred by a business entity in producing goods or services. It collects cost information and communicates the same with management for decision-making.

Identification of costing method

According to the above-given scenario, the company should use absorption costing for evaluating the best outcome.

Absorption costing is more suitable because it will facilitate the business to determinevariable and fixed costs required for acquiring a business.Hence, this costing method will provide more accurate results.