Which accounting policy for manufacturing fixed costs is likely to favour managers whose firms are subject to political scrutiny?
A) Direct costing;
B) Absorption costing;
C) LIFO assuming prices are falling;
D) FIFO assuming prices are rising;
E) E: None of the given answers.

Question

Quizplus · Accepted Answer

Absorption costing would be the best choice as it assigns fixed manufacturing costs to the cost of goods sold, therefore increasing the cost of production and decreasing reported profits. This may be favorable for managers whose firms are subject to political scrutiny as it can be seen as a way to show that the firm is not making excessive profits and is keeping prices low for consumers.

Which Accounting Policy for Manufacturing Fixed Costs Is Likely to Favour