Income Inflation: Absorption Costing Vs. Variable (Notes) (Case Study‪)‬

CASE DESCRIPTION The primary subject matter of this case concerns income inflation opportunities when GAAP based absorption costing is used as compared to internally used variable costing when more inventory is produced than sold. Secondary issues examined include distinctions between financial and managerial accounting; ethical responsibilities of managers, Certified Public Accountants and Certified Management Accountants; organizational climate of institutions; fixed costs vs. variable costs; and how inaccurate reporting in one year may affect financial statements in other years. This case can be tailored to three different difficulty levels; level two , appropriate for sophomore Principles of Managerial Accounting; level three, appropriate for junior Cost Accounting; and level five, appropriate for graduate level Managerial Accounting. This case is designed to be taught in one-half hour of class time and is expected to require one hour of outside preparation by students.