For the Month Referred to Above, Net Operating Income Under

question 44

Multiple Choice

For the month referred to above, net operating income under variable costing will be:

• A)higher than net operating income under absorption costing.
• B)lower than net operating income under absorption costing.
• C)the same as net operating income under absorption costing.
• D)The relation between variable costing and absorption costing net operating income cannot be determineD.Since production exceeds sales, the net operating income for variable costing will be lower than for absorption costing.This occurs because under absorption costing, some of the fixed manufacturing overhead cost is deferred in ending inventories.

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Definitions:

Investment Projects

Initiatives undertaken by businesses to invest in assets or activities with the expectation of generating future benefits or returns.

Internal Rate Of Return

A financial metric used to evaluate the profitability of potential investments, calculated as the discount rate that makes the net present value of all cash flows from the investment equal to zero.

Cash Savings

Funds that have been preserved as a reserve and are readily available for use when needed.

Required Rate Of Return

The minimum expected rate of return on an investment, necessary to compensate for the risk undertaken, varying between investments.