Accounting 9

Absorption and Variable Costing: Please respond to one of the following:

Option 1

Create a situation for determining performance evaluations and bonuses where absorption-costing operating income is used both to increase income and to influence performance measures in use.

Option 2

Evaluate the benefits of variable costing in eliminating opportunities for adverse incentives that absorption costing can create, indicating how a company may leverage these benefits.

Option 3

Justify the use of practical capacity over theoretical capacity in product costing in a manufacturing company with consistent excess capacity. Determine the influence fixed costs of capacity has on pricing decisions and customer response.