Under Which Inventory Costing Method Could Increases or Decreases in Operating

question 13

Multiple Choice

Under which inventory costing method could increases or decreases in operating income be misinterpreted to be the result of operating efficiencies or inefficiencies?

• A)only variable costing
• B)only absorption costing
• C)both variable and absorption costing
• D)neither variable nor absorption costing

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Definitions:

Discount Rate

The interest rate the Federal Reserve charges commercial banks for short-term loans, or a rate used to discount future cash flows to their present value.

IRR Method

The Internal Rate of Return method, a capital budgeting technique that calculates the rate of return at which the net present value of all the cash flows (both positive and negative) from a project or investment equals zero.

Nonconventional Flows

Atypical or irregular cash flows in an investment, complicating the assessment of an investment's value or project's profitability.

Profitability Index

A calculation that measures the relative profitability of an investment, by dividing the present value of future cash flows by the initial investment cost.