Under variable costing, if a manager's bonus is tied to operating income, then increasing inventory levels compared to last year would result in ________.
A) increasing the manager's bonus
B) decreasing the manager's bonus
C) not affecting the manager's bonus
D) being unable to determine the manager's bonus using only the above information

Question

Quizplus · Accepted Answer

Under variable costing, only variable production costs are included in inventory. Fixed costs are expensed in the period incurred, so changes in inventory levels do not affect operating income and thus do not affect the manager's bonus.

Under Variable Costing, If a Manager's Bonus Is Tied to Operating