When Production Is Greater Than Sales

question 1

Multiple Choice

When production is greater than sales

• A)net income under absorption costing will be greater than or less than net income under variable costing depending on the selling and administration costs.
• B)net income under absorption costing will be equal to net income under variable costing.
• C)net income under absorption costing will be less than net income under variable costing.
• D)net income under absorption costing will be greater than net income under variable costing.

Appreciate the impact of tax rates on investment decisions and profitability.

Understand the concept of hurdle rates and its application in investment decision-making.

Analyze the effects of non-uniform cash flows on the net present value calculations.

Understand the limitations of the payback period method in capital budgeting, especially its disregard for the time value of money and cash flows beyond the payback period.

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Definitions:

Fixed Manufacturing Overhead

Costs that do not vary with the level of production, such as rent, salaries, and equipment depreciation, associated specifically with manufacturing.

Financial Advantage

The benefit gained in financial terms, which can result in better profitability or cost savings.

Fixed Manufacturing Expenses

Costs associated with production that do not vary with the level of output, including salaries of permanent staff and depreciation of machinery.

Fixed Selling

Refers to the selling expenses that do not change with the level of sales.