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.

Question

Quizplus · Accepted Answer

Variable costing only includes variable production costs in the cost of inventory, which avoids the issue of overproduction that can be encouraged under absorption costing to inflate profit figures. Absorption costing allocates fixed costs to units produced, which can lead managers to produce more units to spread fixed costs over a larger number of units, reducing the cost per unit and potentially increasing profits even without an increase in sales.

Which of the Following Is a Valid Reason for Using