Podcast
Questions and Answers
What is one of the problems with absorption costing?
What is one of the problems with absorption costing?
- It allocates both variable and fixed costs to products
- It leads to under-costed products
- It encourages overproduction for higher profits (correct)
- It accurately reflects short-term capacity decisions
In absorption costing, why does overproduction lead to lower total costs?
In absorption costing, why does overproduction lead to lower total costs?
- It shifts some fixed costs to the finished goods account on the balance sheet (correct)
- It results in more accurate product costing
- It requires lower variable costs in the long-term
- It reduces the need for investments in production
Which costing method allocates all costs (variable and fixed) to products?
Which costing method allocates all costs (variable and fixed) to products?
- Job order costing
- Process costing
- Activity-based costing
- Absorption costing (correct)
What impact does overproduction have on the balance sheet under absorption costing?
What impact does overproduction have on the balance sheet under absorption costing?
What incentive does absorption costing create for managers in terms of production decisions?
What incentive does absorption costing create for managers in terms of production decisions?
What potential issue arises when managers' performance is evaluated based on total costs?
What potential issue arises when managers' performance is evaluated based on total costs?
How does overproduction impact total variable costs in the short-term under absorption costing?
How does overproduction impact total variable costs in the short-term under absorption costing?
What is a long-term consequence of overproduction under absorption costing?
What is a long-term consequence of overproduction under absorption costing?
What is the main issue associated with overvalued stock due to overproduction under absorption costing?
What is the main issue associated with overvalued stock due to overproduction under absorption costing?
How does overproduction affect production needs and costs in the long run under absorption costing?
How does overproduction affect production needs and costs in the long run under absorption costing?
