Consider the Following Statements About Absorption- and Variable-Costing Income

question 43

Multiple Choice

Consider the following statements about absorption- and variable-costing income:
I. Yearly income reported under absorption costing will differ from income reported under variable costing if production and sales volumes differ.
II. In the long-run, total income reported under absorption costing will often be close to that reported under variable costing.
III. Differences in income under absorption and variable costing can often be reconciled by multiplying the change in inventory (in units) by the variable manufacturing overhead cost per unit.
Which of the above statements is (are) true?

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

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Definitions:

Technology Spillover

Occurs when technological advances or innovations benefit other sectors or industries, beyond the original intention.

Negative Externality

A cost that affects a party who did not choose to incur that cost, often associated with environmental, health, and social issues.

Government Subsidized

A financial contribution provided by the government to support industries, businesses, or individuals, often aimed at achieving economic or social objectives.

Negative Externalities

Costs suffered by a third party due to an economic transaction that they were not directly involved in, often leading to market failure.