Observable differences among prime,variable, and absorption costing firms

How does a firm decide whether to be an absorption coster, variable coster, or prime coster? Although accountants have been unable to collectively resolve the variable-absorption costing debate that has been going on in the accounting literature for years, individual firms do resolve the issue. This study starts from the premise that similarities should exist within a group of firms choosing to produce the same cost data. After determining that one can categorize firms as prime costers, variable costers, or absorption costers, the researcher compares prime costers, variable costers, and absorption costers on four groups of characteristics that have been suggested in the accounting literature as possible guides to the firm's costing method. Of the four, cost structure tends to distinguish between different method choices. Variables that result in different costing methods producing net income figures, industry membership, and the importance of various uses within the firm are less useful in predicting whether a firm is a prime, variable, or absorption coster.