Question 1

a) If a company reports an unfavorable PVV, what conclusion can we draw about that company?

b) If operating income under variable costing is higher than operating income under absorption costing, what conclusion can we draw about that company?

c) If inventory increases by $50,000 under absorption costing and $30,000 under variable costing for the same company in the same period, what conclusion can we draw about that company?

d) If a company increases production but not sales during a period under variable costing, what is the impact on the companys financial statements?

a) What is the goal of the EOQ model?

b) Why does a firm hold safety stock?

c) What costs are a firm trying to balance when it decides on how much safety stock to hold?

d) In the absence of safety stock, how does a firm determine its re-order point?