question archive 1) The main trouble with variable costing is that it ignores the increasing importance of fixed costs in manufacturing companies
1) The main trouble with variable costing is that it ignores the increasing importance of fixed costs in manufacturing companies
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1) The main trouble with variable costing is that it ignores the increasing importance of fixed costs in manufacturing companies. Do you agree? Why?
2) Give an example of how, under absorption costing, operating income could fall even though the unit sales level rises.
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Answer:
1.
No--variable costing does not think fixed costs are unimportant. Rather, variable costing believes the behavior of a cost is crucial for decision making.
2.
Under absorption costing, heavy reductions of inventory during the accounting period might combine with low production and large production volume variance.
this combination could result in lower operating income even if the unit sales level rises.
