NEW MyLab Accounting with Pearson eText -- Access Card -- for Financial Accounting
10th Edition
ISBN: 9780133437287
Author: Walter T. Harrison Jr., Charles T. Horngren, C. William Thomas
Publisher: PEARSON
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Chapter 9, Problem 9.9Q
Critics of absorption costing have increasingly emphasized its potential for leading to undesirable incentives for managers. Give an example.
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Critics of absorption costing have increasingly emphasized its potential for leading to undesirable incentives for managers. Give an example.
Explain how absorption costing can enable a manager to increase production solely for the purpose of inflating profit but prevents a manager from doing this if variable costing is used.
Managers often assume a strictly linear relationship between cost and the level of activity.How can this practice be defended in light of the fact that many costs are curvilinear?
Chapter 9 Solutions
NEW MyLab Accounting with Pearson eText -- Access Card -- for Financial Accounting
Ch. 9 - Differences in operating income between variable...Ch. 9 - Why is the term direct costing a misnomer?Ch. 9 - Do companies in either the service sector or the...Ch. 9 - Explain the main conceptual issue under variable...Ch. 9 - Companies that make no variable-cost/fixed-cost...Ch. 9 - The main trouble with variable costing is that it...Ch. 9 - Give an example of how, under absorption costing,...Ch. 9 - What are the factors that affect the breakeven...Ch. 9 - Critics of absorption costing have increasingly...Ch. 9 - What are two ways of reducing the negative aspects...
Ch. 9 - Prob. 9.11QCh. 9 - Describe the downward demand spiral and its...Ch. 9 - Will the financial statements of a company always...Ch. 9 - Prob. 9.14QCh. 9 - The difference between practical capacity and...Ch. 9 - Prob. 9.16ECh. 9 - Prob. 9.17ECh. 9 - Prob. 9.18ECh. 9 - Prob. 9.19ECh. 9 - Prob. 9.20ECh. 9 - Prob. 9.21ECh. 9 - Prob. 9.22ECh. 9 - Prob. 9.23ECh. 9 - Capacity management, denominator-level capacity...Ch. 9 - Prob. 9.25ECh. 9 - Prob. 9.26ECh. 9 - Prob. 9.27ECh. 9 - Prob. 9.28PCh. 9 - Prob. 9.29PCh. 9 - Prob. 9.30PCh. 9 - Prob. 9.31PCh. 9 - Motivational considerations in denominator-level...Ch. 9 - Prob. 9.33PCh. 9 - Prob. 9.34PCh. 9 - Prob. 9.35PCh. 9 - Prob. 9.36PCh. 9 - Prob. 9.37PCh. 9 - Prob. 9.38PCh. 9 - Prob. 9.39PCh. 9 - Prob. 9.40PCh. 9 - Prob. 9.41PCh. 9 - Prob. 9.42P
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- Why would managers prefer variable costing over absorption costing?arrow_forwardAlthough the cost-plus approach to product pricing may be used by management as a general guideline, what are some examples of other factors that managers should also consider in setting product prices?arrow_forwardWhy would management be concerned about the accuracy of product costs?arrow_forward
- Discuss how financial data prepared on the basis of variable costing can assist management in the development of short-run pricing policies.arrow_forwardManagement may be tempted to overproducea. when using variable costing, in order to increase net income.b. when using variable costing, in order to decrease net income.c. when using absorption costing, in order to increase net income.d. when using absorption costing, in order to decrease net income.arrow_forwardBriefly discuss two methods of reducing the undesirable incentives associated with the use of absorption costing to evaluate the performance of a plant manager.arrow_forward
- Explain why a new product costing system may be needed when line managers suggest that an apparently profitable product be dropped.arrow_forwardWhich of the following is NOT a problem associated with standard cost accounting? a. Standard costing motivates management to produce large batches of products and build inventory. b. Applying standard costing leads to product cost distortions in a lean environment. c. Standard costing data are associated with excessive time lags that reduce its usefulness. d. The financial orientation of standard costing may promote bad decisions. e. All of the above are problems with standard costing.arrow_forwardManagers often assume a strictly linear relationship between cost and volume. How can thispractice be defended in light of the fact that many costs are curvilinear?arrow_forward
- Which of the following is a limitation of activity-based costing? More cost pools Poorer management decisions Less control over overhead costs Some arbitrary allocations continuearrow_forwardWhich of the following statements is not false of costing systems? A. Activity-based costing systems tend to use fewer cost pools than does a traditional costing system. B. Many traditional costing systems can distort product costs and profitability. C. Activity-based costing systems tend to combine various costs into a single cost pool. D. Traditional costing systems tend to be more costly than activity-based costing systemsarrow_forwardExplain why some management accountants believe that absorption costing may provide an incentive for managers to overproduce inventory.arrow_forward
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