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

question 165

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 ending inventory, the cost of goods sold would be lower, and book income would be higher.

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