Which of the following is a reason for companies to use absorption costing for internal accounting?
It can help prevent managers from taking actions that make their performances measure look good but that hurt the income they report to shareholders
Many companies have switched from absorption costing to variable costing for internal reporting
To reduce the undesirable incentive to build up inventories
Ways to “produce for inventory” that result in increasing operating income include _____.
Deferring maintenance to accelerate production.
Switching production to products that adsorb the highest amount of fixed manufacturing costs is also called
To discourage producing for inventory, management can
Incorporate a carrying charge for inventory in the internal accounting system
Which of the following steps can a management take to reduce the undesirable effects of absorption costing?
Under absorption costing, if a manager’s bonus is tied to operating income, then increasing inventory levels compared to last year would result in ________.
Under variable costing, if a manager’s bonus is tied to operating income, then increasing inventory levels compared to last year would result in ________.
Not affecting the manager’s bonus
Critics of absorption costing suggest evaluating management on its ability to ________.
Decrease fixed costs
Which of the following inventory costing methods shown below is most likely to cause undesirable incentives for managers to build up finished goods inventory?
Need essay sample on "Chapter 9 Objective 3"? We will write a custom essay sample specifically for you for only $ 13.90/page