Accountants Prefer the Variable Costing Method Over Absorption Costing Method

question 35

Multiple Choice

Accountants prefer the variable costing method over absorption costing method for evaluating the performance of a company because

• A) by using the absorption costing method, income could appear to be higher by producing more inventory.
• B) by using the absorption method, more sales will be generated.
• C) by using the variable costing method, the cost of goods sold will be higher as more units are manufactured and sales remain the same.
• D) by using the variable costing method, all fixed and variable costs are included in the unit cost of the product manufactured.

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Definitions:

Black-Scholes Value

A theoretical value of an option derived using the Black-Scholes model, which estimates the price of options based on factors such as volatility and time to expiration.

Management Incentive Fee

A fee paid to fund managers for achieving performance targets, often a percentage of the investment gains.

Standard Deviation

A measure of the dispersion or variation in a set of data points, often used in finance to quantify the risk of an investment.

Positive Alpha

A metric indicating that an investment has performed better than its benchmark index, suggesting superior management or strategy.