Which of the following is not a reason management might be tempted to classify costs as product costs rather than expensing them during periods in which production exceeds sales?
A) The company's bank may be more likely to extend financing to the firm.
B) Income taxes will be lower.
C) Net income will be higher.
D) Management bonuses may be higher.

Question

Quizplus · Accepted Answer

Classifying costs as product costs rather than expensing them leads to higher net income in periods where production exceeds sales because expenses are deferred until the products are sold. This can make the company appear more profitable and financially stable, potentially influencing bank decisions on financing and increasing management bonuses due to better financial performance. However, it does not directly lead to lower income taxes; in fact, deferring expenses could delay tax deductions, potentially resulting in higher taxes in the current period.

Which of the Following Is Not a Reason Management Might