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

Question

Quizplus · Accepted Answer

Absorption costing assigns fixed manufacturing overhead costs to the cost of each unit produced, resulting in higher inventory costs and lower reported profits compared to direct costing. This may be preferred by managers whose firms are subject to political scrutiny as it can make the company's financial statements appear less profitable, potentially reducing political pressure to increase taxes or regulate the industry.

Which Accounting Policy for Manufacturing Fixed Costs Is Likely to Favour