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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Definitions:

Self-Fulfilling Prophecy

A prediction that directly or indirectly causes itself to become true due to positive feedback between belief and behavior.

Existing Schemas

Pre-established cognitive frameworks or concepts that help individuals organize and interpret information based on past experiences.

Confirmation Bias

The tendency to search for, interpret, favor, and recall information in a way that confirms one’s preexisting beliefs or hypotheses.

Worldview

The foundational beliefs and perceptions through which an individual interprets and understands the world around them.