MGAC03H3 Chapter 9: Chapter 9 Notes
Document Summary
Chapter 9 income effects of denominator level on inventory valuation notes. Gaap external reporting requires the use of normal capacity in the denominator taking into account off-limits idle capacity unallocated overhead (variance) is recognized in the time period incurred. Gaap also permits the use of actual production level if it is not materially different from normal capacity. Proposals for revising performance evaluation critics of absorption costing have made a variety of proposals for revising how managers are evaluated their proposals include the following: change the accounting system. Both variable and throughput costing reduce incentives of managers to build up inventory: careful budgeting and inventory planning to reduce management"s freedom to build up excess inventory. 3: change the time period used to evaluate performance. By evaluating performance over a 3-to-5-year period, the incentive. Incorporate a carrying charge for inventory in the internal accounting system. to take short-run actions that reduce long-term income is reduced.
