When the

question 16

Multiple Choice

When the

• A)ending inventory on the balance sheet is lower under absorption costing than under variable costing.
• B)ending inventory on the balance sheet is higher under absorption costing than under variable costing.
• C)ending inventory on the balance sheet is the same under absorption costing and variable costing.
• D)cannot be determined with the information given.

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Definitions:

Variable Costs

Variable costs are expenses that change in proportion to the activity or volume of a business, such as raw materials and labor costs that vary with production levels.

Contribution Margin

Contribution margin represents the difference between sales revenue and variable costs, indicating how much revenue contributes towards covering fixed costs and generating profit.

Sales Revenue

The total amount of money generated from the sale of goods or services before any costs or expenses are deducted.

Variable Cost

Costs that vary directly with the level of production or sales volume, such as raw materials and direct labor.