When a Company Uses Absorption Costing,there Is the Potential for Income

question 70

Multiple Choice

When a company uses absorption costing,there is the potential for income manipulation based on choice of the denominator volume for setting the fixed overhead allocation rate.In which case is this manipulation-potential manifested?

• A)When sales volume > production volume,and the production-volume variance is prorated to inventories and cost of goods sold at the end of the period.
• B)When sales volume < production volume,and the production-volume variance is prorated to inventories and cost of goods sold at the end of the period.
• C)When the production-volume variance is written off entirely as an adjustment to cost of goods sold at the end of the period.
• D)When budgeted output is used to develop the standard overhead cost-allocation rate.

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