Which of the Following Is a Valid Reason for Using

question 132

Multiple Choice

Which of the following is a valid reason for using variable costing?

• A) Fixed production cost should be ignored when costing units of inventory since it is not essential to the production process.
• B) Absorption costing recognizes fixed costs as expense regardless of volume of production.
• C) Absorption costing may motivate managers to overproduce in order to increase profits.
• D) Under variable costing managers can increase profitability by increasing the volume of production.

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Definitions:

Annual Earnings

The total amount of money earned by an individual or entity in one year, often before taxes.

Earnings Ratio

Earnings ratio typically refers to financial metrics that compare various aspects of a company's earnings to other measures, such as its share price in the price-to-earnings ratio.

Discriminate

To make a distinction in favor of or against a person or thing based on the group, class, or category rather than individual merit.