1. How do differences in production and sales levels affect income under absorption and variable costing?

2. Explain why either absorption or variable costing is best for a company to use as their costing system for internal decision making. Why do many firms maintain accounting records under both systems?

3. Chris Gatan, president of Vid Village, has heard about operating leverage and asks you to explain this term. What is operating leverage?How does a company increase its operating leverage?