Posted: April 22nd, 2016

As the CFO, how would you respond to this comment from the Controller of the Manufacturing Division

As the CFO, how would you respond to this comment from the Controller of the Manufacturing Division, The problem with variable costing is that it ignores the problem of excess capacity at certain times of the year. We have a cyclical business, and it simply costs us much more per unit in the off season than it does in peak season. We should allocate all fixed manufacturing overhead to total production each month. This also enables us to improve net income by producing for inventory, producing more than we can sell, if sales lag. The stockholders seemed to like this technique last year because it kept earnings up and prevented a decline in stock price.