Under Variable Costing, If a Manager's Bonus Is Tied to Operating

question 205

Multiple Choice

Under variable costing, if a manager's bonus is tied to operating income, then increasing inventory levels compared to last year would result in ________.

• A) increasing the manager's bonus
• B) decreasing the manager's bonus
• C) not affecting the manager's bonus
• D) being unable to determine the manager's bonus using only the above information

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Definitions:

Costs Recorded

Expenses documented in the financial records of a business, reflecting the economic use of resources.

Carrying Amount

Refers to the value of an asset or liability as reported on the balance sheet, considering factors like depreciation or amortization.

Depreciable Asset

A long-term asset subject to depreciation, reflecting the decrease in value over time due to wear and tear, age, or obsolescence.

Depreciation

The process of allocating the cost of a tangible asset over its useful life, representing how much of the asset's value has been used up.