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Managerial Accounting

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Absorption Costing Ethics: Reducing Temptation

MGRACT-QDWGIC

Under absorption costing, performance can be enhanced unethically through producing more units that sales demand indicates and thus capitalizing some portion of the period's fixed overhead.

What is one way to reduce this temptation?

A

Use practical capacity in computing the predetermined overhead rates for fixed overhead.

B

Use variable costing for performance assessment purposes.

C

Use budgeted capacity in computing the predetermined overhead rates for fixed overhead.

D

Use operating income for performance assessment purposes.