1. How does variable costing differ from absorption costing?

2. When will absorption costing operating income exceed variable costing operating income?

3. What are some advantages and disadvantages of using net income as a measure of profitability?

4. Suppose that Big Co. has four product lines, three of which are profitable and one which usually incurs a loss. Give reasons why Big Co. may choose not to drop the losing product line.

5. What is a business segment, and why would a company want to measure profits of segments? Give some examples.

6. When should a business use absorption costing when setting sales prices? When should it use variable costing?