A Conservative Policy with Regard to Capitalizing or Expensing Costs

question 39

Multiple Choice

A conservative policy with regard to capitalizing or expensing costs associated with plant assets avoids ________.

• A)understating profits and assets
• B)overstating profits and assets
• C)overstating profits and understating assets
• D)understating profits and overstating assets

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Definitions:

Variable Manufacturing Overhead

The part of manufacturing overhead expenses that directly fluctuates in relation to the volume of production.

Machine-Hours

A measurement of the amount of time a machine is operated, used as a basis for allocating machine-related costs to products.

Job-Order Costing

An accounting methodology that assigns costs to specific production batches or jobs, useful for custom or unique products.

Unit Product Cost

The calculated cost of a single unit of product that includes direct materials, direct labor, and manufacturing overhead.