If a Company Uses Standard Absorption Costing, How Could a Business

question 138

Multiple Choice

If a company uses standard absorption costing, how could a business manager exploit that accounting method in order to boost book income without violating the rules of GAAP?

• A) By adopting just-in-time inventory management, the manager could reduce the costs of financing and storing inventory, which would in turn, help boost book income.
• B) By coding administrative costs to inventory, the manager could report lower total expenses and thus report higher income.
• C) By reducing inventory levels, the manager could show higher sales revenues, and thus report higher book income.
• D) By building up inventory levels, fixed manufacturing costs could be "stored up" in inventory, the cost of goods sold would be lower, and book income would be higher.

---

Definitions:

Production

The process of creating, developing, manufacturing, or bringing forth goods and services, typically involving both human labor and tools or machinery.

Collective Ownership

A principle or practice where the assets or property are owned jointly by all members of a group or community, emphasizing shared rights and responsibilities.

Means of Production

The tools, machinery, facilities, and resources used to produce goods and services, often discussed in the context of economic systems and ownership.

Communism

A system of government that eliminates private property; it is the most extreme form of socialism, because all citizens work for the government and there are no class distinctions.