Absorption Costing of Inventories, as Required by US GAAP, Has

question 17

Multiple Choice

Absorption costing of inventories, as required by US GAAP, has been criticized for encouraging managers to increase year-end inventories in order to boost reported profits. Which of the following techniques is the most effective at resolving this problem?

• A)Senior management control of inventory levels
• B)Adoption of just-in-time (JIT) production system
• C)Reward managers based upon the residual income approach
• D)Use variable costing to determine income for bonus purposes
• E)None of the above

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