Which of the Following Is True of Absorption Costing

question 91

Multiple Choice

Which of the following is true of absorption costing?

• A) It enables a manager to decrease margins and operating income by producing more beginning inventory.
• B) It enables a manager to increase margins and operating income by producing more beginning inventory.
• C) It enables a manager to decrease margins and operating income by producing more and building ending inventory.
• D) It enables a manager to increase margins and operating income by producing more and building ending inventory.

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Definitions:

Single Source

The practice of obtaining a particular product, service, or component from a single supplier, making the supplier the exclusive provider.

Average Cost

The total cost of goods available for sale divided by the total units available for sale, determining the cost of inventory.

WACC

The Weighted Average Cost of Capital (WACC) is a calculation of a firm's cost of capital in which each category of capital is proportionately weighted. It represents the minimum return that a company must earn on its existing asset base to satisfy its creditors, owners, and other providers of capital.

Component Cost

The cost associated with each separate element (debt, equity, etc.) that comprises the overall cost of capital for a firm.