Which of the following statement is true regarding choice of the denominator volume level in conjunction with the process of allocating fixed manufacturing costs to production?
A) The choice typically will affect end-of-period asset values, but not the production-volume variance for the period.
B) The choice is important only if the company in question uses variable costing.
C) Under absorption (full) costing, this choice can affect reported profits for the period.
D) This choice has no effect on the standard overhead cost-allocation rate.
E) The choice affects the standard overhead cost-allocation rate but not product cost.

Question

Quizplus · Accepted Answer

Under absorption (full) costing, the choice of the denominator volume level can affect reported profits for the period as it directly impacts the overhead allocation rate used to allocate fixed manufacturing costs to production. Choosing a higher denominator volume level would result in a lower overhead allocation rate and higher reported profits, while choosing a lower denominator volume level would result in a higher overhead allocation rate and lower reported profits. This choice does not have any significant impact on variable costing.

Which of the Following Statement Is True Regarding Choice of the Denominator