Managers Whose Bonuses Are Based on Operating Income Have More

question 157

True/False

Managers whose bonuses are based on operating income have more incentive to increase inventory levels when variable costing is used than when absorption costing is used.

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Definitions:

Total Output

The entire quantity of goods or services produced by an individual, firm, industry, or economy within a specified period.

Implicit Costs

Costs that represent the value of resources used in production for which no direct payment is made.

Explicit Costs

Direct, out-of-pocket payments a firm makes to purchase the inputs it needs for production, such as wages, rent, and materials.

Calendar Time

The concept of time as measured by calendar units, such as days, months, and years, used in planning and scheduling.