The difference between the contribution approach and absorption approach is the treatment of fixed factory overhead.
　　Selling, general, and administrative expenses are period costs under both methods.
 
　　Instructor’s tips:
　　Absorption cost is costing approach that considers all factory overhead (both variable and fixed) to be product costs that become an expense in the form of manufacturing cost of goods sold only as sales occur.
　　Contribution cost is method of internal (management accounting) reporting that emphasizes the distinction between variable and fixed costs for the purpose of better decision making.
 
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