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:

Majority Leader

A term referring to the head of the majority party in a legislative body, responsible for coordinating legislative strategy and acting as a spokesperson for the majority party.

Presidential Conduct

Pertains to the behaviors, actions, and decisions made by the President of the United States in office, reflecting on his administration's values and priorities.

Foreign Policy

The strategies and decisions a government makes to interact with other nations to safeguard its national interests and achieve its goals.

Constitutionally Authority

The power or right given by a constitution to govern or legislate.