The problem you've provided revolves around a company named "Aman" which produces product X. Here are some important details from the text:

1. The product is sold at Rp. 14.40 per unit.
2. In 2013, the company produced 80,000 units but only sold 72,000 units.
3. The company incurs both variable and fixed costs, which are broken down as:
   • Variable costs:
     • Raw materials: 280,000
     • Direct labor: 200,000
     • Factory overhead: 80,000
     • Administration and selling: 69,120
   • Fixed costs:
     • Factory overhead: 180,000
     • Administration and selling: 120,000

In choosing a method for the company, we generally evaluate between Absorption Costing and Variable Costing (also known as Marginal Costing). Here’s an overview of both:

1. Absorption Costing:

• Includes both variable and fixed production costs in the cost of the product.
• Inventory is valued with fixed and variable costs.
• When units are unsold, some fixed costs remain in inventory.
• Profits may appear higher if not all units are sold since fixed costs are deferred into inventory.

2. Variable Costing (Marginal Costing):

• Only variable costs are included in the product cost.
• Fixed costs are treated as period costs, directly deducted from the total revenue in the period they are incurred.
• Profits reflect only the actual units sold, making it a clearer picture of operational performance.

Analysis for the company:

• Since the company produced more than it sold (80,000 units produced vs. 72,000 units sold), Absorption Costing may overstate profits because a portion of fixed costs would be allocated to the unsold inventory.
• Variable Costing would provide a more transparent view of profitability based solely on the products sold, without the potential inflation of profits due to unsold inventory.

Argument:

• Variable Costing could be more suitable for the company, especially if management is focused on cost control and understanding the direct contribution margin from sales. It provides a more accurate picture of operating profit, without deferring costs to future periods.
• However, if the company is preparing financial statements for external purposes (like investors or tax reporting), Absorption Costing might be required because it is generally accepted under accounting standards (GAAP/IFRS).

Do you want a more detailed breakdown of calculations to illustrate both methods for this scenario?

Here are 5 relative questions to further explore the topic:

1. How would the profit differ under Variable Costing and Absorption Costing for this company?
2. What impact does selling fewer units than produced have on financial statements under Absorption Costing?
3. Why is it important to differentiate between fixed and variable costs in decision-making?
4. How does inventory valuation change under Absorption and Variable Costing methods?
5. What are the managerial implications of choosing one costing method over the other?

Tip: Use Variable Costing when analyzing short-term decisions, as it highlights how much of each sale contributes to fixed costs and profits.