6-4 What arguments in favor of treating fixed manufacturing overhead costs as pr

Question

6-4 What arguments in favor of treating fixed manufacturing overhead costs as product costs?

6-6 If the units produced and unit sales are equal, which method would you expet to show the higer operating income, variable costing or absorption costing? Why?

6-7 If the units produced exceed unit sales, which method would you expect to show the higher net operating income, variable costing or absorptioncosting? Why?

6-8 If fixed manufacturing overhead costs are relaesed from inventory under absorption costing, what does this tell you about the level of production in relation to the level of sales?

6-9 Under absorption costing, how is it possible to increase net operating income without increasing sales?

Explanation / Answer

The Fixed Manufacturing Costs should be treated as the period cost due to the Matching Principle. For eg. Depreciation is a fixed cost and charged as the period costs.

2. The Variable Costing will show the higher operating income as in variable costing the fixed costs are not being taken into consideration.

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