For the Year in Question, One Would Expect the Net

question 203

Multiple Choice

For the year in question, one would expect the net operating income under absorption costing to be:

• A)higher than the net operating income under variable costing.
• B)lower than the net operating income under variable costing.
• C)the same as the net operating income under variable costing.
• D)the relation between absorption costing and variable costing net operating incomes cannot be determineD.Manufacturing exceeds sales, so absorption costing net operating income will exceed variable costing net operating income.

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Definitions:

High-Low Method

A method employed in cost accounting that calculates estimated variable and fixed costs using the highest and lowest activity levels.

Fixed Cost

A cost that does not change with an increase or decrease in the amount of goods or services produced or sold by a business.

Degree of Operating Leverage

A measure that quantifies how much sales revenue can affect operating income due to the presence of fixed costs in a company's cost structure.

Pretax Profit

The profit earned by a company before any tax is deducted, showing the company's earnings directly from its operations.