For the Year in Question, Net Operating Income Under Variable

question 11

Multiple Choice

For the year in question, 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 absorption costing and variable costing net operating income cannot be determineD.Because 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:

Futures Contracts

Standardized agreements to buy or sell a particular commodity or financial instrument at a predetermined price at a specified time in the future.

Actual Delivery

The physical exchange of an asset between seller and buyer or the completion of a transaction, as opposed to a contract being settled by other means.

Interest Rate Futures

Financial derivatives contracts that speculate on the future level of interest rates, allowing investors to hedge or speculate on changes in interest rates.

Eurodollars

U.S. dollar-denominated deposits held in banks outside the United States, not under the jurisdiction of the Federal Reserve, used in international transactions.