A Basic Tenet of Variable Costing Is That Fixed Manufacturing

question 255

Multiple Choice

A basic tenet of variable costing is that fixed manufacturing overhead costs be currently expensed. What is the rationale behind this?

• A)Fixed manufacturing overhead costs are generally immaterial in amount.
• B)Fixed manufacturing overhead costs occur regardless of level of production.
• C)Allocation of fixed manufacturing costs are arbitrary at best.
• D)Fixed manufacturing costs change as production changes.

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Definitions:

Transfer Price

The price at which goods or services are transferred between departments or subsidiaries within the same company.

Crude Oil

A naturally occurring, unrefined petroleum product composed of hydrocarbon deposits and other organic materials, used as a fuel and in the production of various chemicals.

Merge

The combination of two or more entities (such as companies) into a single entity, often with the goal of enhancing competitive advantage or expanding market reach.

Vertically Integrated

A company's consolidation of all or part of the production process and supply chain within itself, controlling different stages of production usually to increase the company's power in the marketplace.