26

Under GAAP,

a absorption costing is required to be used for the costing of inventory for external reporting purposes.

b net income highlights differences between variable and fixed costs.

c measured net income is often used externally to evaluate performance, justify cost increases, or evaluate new projects.

d measured net income is often used internally to evaluate performance, justify cost increases or evaluate new projects.

29

Which of the following isnota potential advantage of variable costing relative to absorption costing?

a Net income calculated under variable costing is unaffected by changes in production levels.

b It is easier to understand the impact of fixed and variable costs on the computation of net income when variable costing is used.

c The use of variable costing is consistent with cost-volume-profit analysis.

d Net income calculated under variable costing is not closely tied to changes in sales levels.