Under Which Inventory Costing Method Could Increases or Decreases in Income

question 114

Multiple Choice

Under which inventory costing method could increases or decreases in income from operations be misinterpreted to be the result of operating efficiencies or inefficiencies?

• A) only variable costing
• B) only absorption costing
• C) both variable and absorption costing
• D) neither variable nor absorption costing

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Definitions:

Actual Cost

Actual cost is the true amount of money spent on producing a product, completing a project, or conducting an activity, including all direct and indirect expenses.

Direct Labor Rate Variance

The difference between the actual rate and the standard rate paid for direct labor multiplied by the actual direct labor hours used in producing a product.

Direct Labor

The wages paid to workers who are directly involved in the production of goods or services.

Direct Labor Rate Variance

The difference between the expected cost of direct labor per unit of production and the actual cost incurred.