Net income computed under which type of costing may not agree with the results of CVP analysis?

BlackTom Analysis

Question

Net income computed under which type of costing may not agree with the results of CVP analysis?

BlackTom Analysis

BlackTom AI · Accepted Answer

Question restated: Net income computed under which type of costing may not agree with the results of CVP analysis?

Option A: Variable
- Reasoning: Variable costing uses only variable production costs for product cost, treating fixed manufacturing overhead as a period expense. CVP (cost-volume-profit) analysis typically focuses on contribution margin built from variable costs, so in some cases the final reported net income under variable costing may diverge from CVP results because fixed overhead timing and allocation differ.

Option B: Absorption
- Reasoning: Absorption costing assigns both variable and fixed manufacturing overhead to product costs. In CVP analysis, fixed overhead is often treated as a period cost or allocated differently. Because absorption allocates fixed overhead to inventory, changes in production volume and inventory levels can cause net income to differ from the CVP-based income, especially when there are changes in stock.

Option C: Direct
- Reasoning: Direct costing is another term sometimes used synonymously with variable costing. Since variable cost treatment aligns with the CVP framework that uses contribution margins, this option would typically align with CVP rather than diverge. Thus, it is less likely to cause a mismatch with CVP results.

Option D: Marginal
- Reasoning: Marginal costing is equivalent to variable costing in many contexts, focusing on the contribution margin. Similar to option C, its approach complements CVP analysis, so it is unlikely to produce an income figure that systematically disagrees with CVP outcomes.

Summary: The reason for potential discrepancy between net income and CVP results arises from how fixed manufacturing overhead is treated and allocated. Absorption costing (Option B) includes fixed overhead in product costs, which can lead to differences vs. CVP analysis that emphasizes variable costs and contribution margin, making Option B the one most likely to not agree with CVP results.

Net income computed under which type of costing may not agree with the results of CVP analysis? BlackTom Analysis

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Absorption costing can lead managers to mistakenly believe that fixed manufacturing overhead costs will:

Decision-making problems that could occur when using absorption costing include which of the following? (More than one answer may be correct.) BlackTom Analysis

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