Question

For each of the statements below, use the dropdown box to select the response that completes the sentence correctly. Knowledge Check 01 When the units produced are equal to the units sold, net operating income computed using the absorption costing approach is the net operating income computed using the variable costing approach. Knowledge Check 01 Which of the following costing approaches is best suited for cost-volume-profit analysis? Absorption Normal Standard Variable Knowledge Check 01 The use of absorption costing for segmented income statements results in omission of upstream and downstream costs failure to trace costs directly inappropriate use of allocation base arbitrary division of common costs among segments

Answer 1

1. Answer- same as

when the unit produced are equal to the units sold. Net operating income computed using absorption costing is same as the net operating income computed using variable costing approach.

2. Answer- (A).omission of upstream and downstream cost.

3.Answer- (D). Variable costing.

Cost-Volume-Profit (CVP) analysis is a managerial accounting technique which studies the effect of sales volume and product costs on operating profit of a business. It shows how operating profit is affected by changes in variable costs, fixed costs, selling price per unit and the sales mix of two or more products. It studies the relevant costing which is useful for the purpose of decision making and thus variable cost is important approach suited for cost volume profit analysis.