Consider the Following Statements About Absorption Costing and Variable Costing

question 6

Multiple Choice

Consider the following statements about absorption costing and variable costing:
I. Variable costing is consistent with contribution reporting and cost-volume-profit analysis.
II. Absorption costing must be used for external financial reporting.
III. A number of companies use both absorption costing and variable costing.
Which of the above statements is (are) true?

• A) I only.
• B) II only.
• C) III only.
• D) I and II.
• E) I, II, and III.

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Definitions:

Marginal Physical Product

The additional output produced by using one more unit of a variable input, holding all other inputs constant.

Marginal Revenue Product

The additional revenue generated by employing one more unit of a factor of production, such as labor or capital.

Additional Revenue

The extra or incremental income received from selling one more unit of a product or service.

Input Hired

Resources or factors of production, such as labor, raw materials, and capital, employed in the creation of goods and services.