Which of the following statements is not true regarding the use of variable and absorption costing for performance measurement?The net income reported under the absorption method is less reliable for use in performance evaluations because the cost of the product includes fixed costs, which means the level of inventory affects net income.The net income reported under the contribution income statement is more reliable for use in performance evaluations because the product cost does not include fixed costs.Variable costing isolates contribution margins to aid in decision making.The Internal Revenue Service allows either absorption or variable costing as long as the method is not changed from year to year, while U.S. GAAP only allows absorption costing.

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Asked Jan 14, 2020
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Which of the following statements is not true regarding the use of variable and absorption costing for performance measurement?

  1. The net income reported under the absorption method is less reliable for use in performance evaluations because the cost of the product includes fixed costs, which means the level of inventory affects net income.
  2. The net income reported under the contribution income statement is more reliable for use in performance evaluations because the product cost does not include fixed costs.
  3. Variable costing isolates contribution margins to aid in decision making.
  4. The Internal Revenue Service allows either absorption or variable costing as long as the method is not changed from year to year, while U.S. GAAP only allows absorption costing.
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Expert Answer

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Absorption costing: It refers to the method of product costing in which the price of the product is calculated considering all fixed as well as the variable or direct costs. The valuation of closing inventory in this method is consisting both fixed and variable costs.

Variable costing: It refers to the method ...

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