Why Do Companies Use Variable Costing for Internal Financial Statements

question 21

Multiple Choice

Why do companies use variable costing for internal financial statements?

• A) Production volume variance does not affect variable costing income but it does affect absorption costing income.
• B) Variable costing does not create an incentive to produce additional unneeded units to increase net income.
• C) A sales-oriented company wants to track the effect of sales on net income.
• D) All of the above

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Definitions:

Principles

Fundamental truths or propositions that serve as the foundation for a system of belief, behavior, or reasoning.

Goal-Sharing

A strategy where organizational objectives are communicated and shared among team members to ensure alignment and foster cooperation.

Gain-Sharing

A performance-based compensation strategy where employees receive benefits from the cost-saving measures they contribute to.

Draw System

A compensation method where payments made to an employee in advance are later subtracted from their commissions to ensure they receive a consistent income.