FINANCIAL AND MANAGERIAL ACC VOL 2 W/CON
9th Edition
ISBN: 9781266907838
Author: Wild
Publisher: MCG/CREATE
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Chapter 19, Problem 3DQ
To determine
Absorption Costing:
In absorption costing all the costs of production are absorbed by or assigned to all the units of production. In simple words, all the direct costs or
Variable Costing:
Variable costing is also known as marginal costing as it is dynamic in nature, i.e., cost of manufacturing changes proportionally with the change in the units of production. Variable costing does not consider fixed costs; it only acknowledges variable costs which have a direct association with production.
To explain: Effects of units produced exceed units sold for a reporting period.
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Isabel, a calendar-year taxpayer, uses the cash method of accounting for her sole proprietorship. In late December she received a $20,000 bill from her accountant for consulting services related to her small business. Isabel can pay the $20,000 bill anytime before January 30 of next year without penalty. Assume her marginal tax rate is 37 percent this year and next year, and that she can earn an after-tax rate of return of 12 percent on her investments.
a. What is the after-tax cost if Isabel pays the $20,000 bill in December?
b. What is the after-tax cost if Isabel pays the $20,000 bill in January? Use Exhibit 3.1. (Round your answer to the nearest whole dollar amount.)
c. Based on requirements a and b, should Isabel pay the $20,000 bill in December or January?
multiple choice
December
January
Answer correctly plz otherwise unhe
Financial accounting
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FINANCIAL AND MANAGERIAL ACC VOL 2 W/CON
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