Answer:
E. All of these.
Reasons for Carrying Inventory are following:
• To balance ordering or setup costs and carrying costs.
• To satisfy customer demand (e.g., meet delivery dates).
• To avoid shutting down manufacturing facilities because of:
• Machine failure
• Defective parts.
• Unavailable parts.
• To buffer against unreliable production processes.
• To take advantage of discounts.
• To hedge against future price increases.
Answer:
In Absorption costing, fixed factory overhead is treated as a product cost. Unit product cost consists of direct materials, direct labor, variable factory overhead, and fixed factory overhead.
In Variable costing, fixed factory overhead is treated as a period expense. Unit product cost under variable costing consists of direct materials, direct labor, and variable factory overhead.
Table showing difference between Absorption costing and Variable costing
Answer:
C. Overall operating income will decrease by $25,000.
Operating income under variable costing: