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If a manager’s bonus is tied to operating income, then decreasing inventory levels by producing less compared to last year would result in:

Sagot :

Parrain

If the manager has an income that is tied to operating income then decreasing inventory would result in a D) a decrease to the manager’s bonus under variable costing but not under absorption costing.

Why would the manager's income fall?

When using variable costing, operating income is based on variable costs and the level of production. If the production is less, there will be less costs but also less income.

As a result, if inventory levels are lower, the operating income will be less which means the manager's bonus will be less as well. Using absorption costing negates this however.

In conclusion, option D is correct.

Find out more on absorption costing at https://brainly.com/question/15854861.

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