FIFO Is Preferred When Purchase Costs Are Rising and Managers

question 218

True/False

FIFO is preferred when purchase costs are rising and managers have incentives to report higher income for reasons such as bonus plans, job security, and reputation.

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Definitions:

Variable Manufacturing Overhead

Costs in manufacturing that vary with the level of production output, such as electricity for machinery.

Variable Overhead Rate Variance

The difference between the actual variable overhead cost incurred during a period and the standard cost that should have been incurred based on the actual activity of the period.

Direct Labor-Hours

A measure of the total hours worked by employees directly involved in manufacturing a product or providing a service.

Overhead Budget

A financial plan estimating the expected indirect costs required to support operational activities within a certain period.