Shalom Company manufactures 50,000 units of a product and sells 40,000 units. Total manufacturing cost per unit is P50 (variable manufacturing cost, P10; fixed manufacturing cost, P40). Assuming no beginning inventory, what is the effect on net income if absorption costing is used instead of variable costing?

net income is P200,000 higher

net income is P400,000 higher

net income is the same

net income is P400,000 lower

Management will most likely prefer a low degree of operating leverage if

The operations incurred very high fixed costs.

The operations are very unprofitable.

There is an expected decrease in sales volume.

There is an expected increase in sales volume.

When using CVP analysis to determine sales level for a desired amount of profit, the profit is treated as an additional cost to be covered.

Select one:

True

False

Variable costing is also known as

Direct costing

Target costing

Standard costing

Indirect costing.