Accounting for Natural Resources

question 4

Multiple Choice

Accounting for natural resources:

• A) involves using the accumulated depreciation account.
• B) involves estimating the quantity of the natural resource to be recovered.
• C) involves an exception to the matching concept.
• D) involves a sum-of-the-year's-digits depletion calculation.

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Definitions:

Absorption Costing

An accounting method that includes all of the costs associated with manufacturing a product in the cost of that product.

Operating Income

Earnings before interest and taxes (EBIT), a measure of a company's profitability from its operations.

Variable Costing

An accounting method that assigns only variable production costs to products, treating fixed costs as period costs.

Absorption Costing

An accounting method that includes all manufacturing costs (fixed and variable) in the cost of a product.