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

question 25

Multiple Choice

If a company uses standard absorption costing,how could a business manager exploit that accounting method in order to boost profit without violating the accounting standards?

• A) By building up inventory levels, fixed manufacturing costs could be 'stored up' in inventory, the cost of sales would be lower and profit would be higher.
• B) By reducing inventory levels, the manager could show higher sales revenues, and thus report higher profit.
• C) By coding administrative costs to inventory, the manager could report lower total expenses and thus report higher profit.
• D) By adopting just-in-time inventory management, the manager could reduce the costs of financing and storing inventory which would in turn help boost profit.

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Definitions:

Alpha

A coefficient that often represents the level of significance in hypothesis testing, marking the threshold for rejecting the null hypothesis.

Critical Value

A point on a statistical distribution that represents the threshold for significance testing, helping decide whether to reject the null hypothesis.

Alpha

The pre-determined significance level in hypothesis testing, often set at 0.05, which defines the likelihood of observing a result at least as extreme as the one seen in the sample data if the null hypothesis is true.

T-statistic

A type of statistic used in hypothesis testing, calculated as the ratio of the departure of an estimated parameter from its hypothesized value to its standard error.