If a Company Uses Standard Absorption Costing, How Could a Business

question 165

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 ending inventory, the cost of goods sold would be lower, and book income would be higher.

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Definitions:

Centration

The cognitive tendency in early childhood to focus on one aspect of a situation while neglecting others.

Modelling Clay

A pliable material used in art and education to create three-dimensional objects and forms through shaping and molding.

Conservation

In cognitive development, the understanding that certain properties of objects or substances do not change when their appearance is altered.

Preoperational Stage

The second stage in Piaget's theory of cognitive development, occurring roughly between the ages of 2 and 7, characterized by symbolic thinking, egocentrism, and a lack of logical reasoning.