Answer the following question(s)using the information below.Heinrich Corporation budgeted fixed manufacturing costs of $6,000 during 2012.Other information for 2012 includes:
The company uses absorption costing and the fixed manufacturing cost rate is based on the budgeted denominator level.Manufacturing variances are closed to cost of goods sold.
-Which of the following is an example of a drawback of using absorption costing?
A)It allows management the ability to manipulate operating income via production schedules.
B)An inventoried cost will eventually become part of cost of goods sold.
C)The company's sales level drives the production schedules.
D)A manager may increase maintenance activities above the budgeted level for the current period.
E)Expensing fixed costs as period costs reducing operating income.

Question

Answer the following question(s)using the information below.Heinrich Corporation budgeted fixed manufacturing costs of $6,000 during 2012.Other information for 2012 includes:
  The company uses absorption costing and the fixed manufacturing cost rate is based on the budgeted denominator level.Manufacturing variances are closed to cost of goods sold.
-Which of the following is an example of a drawback of using absorption costing?
A)It allows management the ability to manipulate operating income via production schedules. 
B)An inventoried cost will eventually become part of cost of goods sold. 
C)The company's sales level drives the production schedules. 
D)A manager may increase maintenance activities above the budgeted level for the current period. 
E)Expensing fixed costs as period costs reducing operating income.

Quizplus · Accepted Answer

Absorption costing can lead to manipulation of operating income by overproducing inventory, which spreads fixed costs over more units, reducing per-unit cost and inflating profits.

Answer the Following Question(s)using the Information Below