Comparisons of Year-To-Year Changes in the Current Dollar Value of Output

question 10

Multiple Choice

Comparisons of year-to-year changes in the current dollar value of output can be misleading because

• A) nonmarket transactions are included.
• B) intermediate goods are excluded.
• C) nonproductive transactions are added to changes in production costs.
• D) secondhand goods are excluded.
• E) they reflect changes in both prices and output.

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Definitions:

Net Operating Income

A measure of a company's profitability from its regular business operations, excluding expenses and revenues that are unrelated to the primary business activities.

Absorption Costing

Absorption costing is an accounting method that includes all manufacturing costs - direct materials, direct labor, and both variable and fixed overhead - in the cost of a product.

Variable Costing

An accounting method that includes only variable production costs (direct materials, direct labor, and variable manufacturing overhead) in product costs, excluding fixed manufacturing overhead.

Fixed Manufacturing Overhead

Costs that do not change with the level of production activity, such as salaries of managers, depreciation of factory equipment, and utility costs of the factory.