Answer the following two questions precisely and shortly: Time 30 minutes

1. Under absorption costing, how is it possible to increase net operating

income without increasing sales?

1. Lean Production is a managerial accounting concept, which simply means

creating more value for customers with fewer resources. That is,
a lean organization understands customer value and focuses its key
processes to continuously increase it. The ultimate goal is to provide
perfect value to the customer through a perfect value creation process that
has zero waste.

Required:
-          What is the effect of Lean Production in an organization using both
absorption and variable costing in its costing system?

Q1) fixed production costs are included in the unit product cost increasing production will reduce the
fixed cost per unit. When these reduced costs are included in cost of goods sold, income will be
higher. under variable costing treats fixed production costs as a period cost, and expenses the full
amount regardless of production. so, income is unaffected by increasing production.

Q2) A company using lean production method would show approximately the same net operating
income under both absorption and variable costing this is because production is geared to sales
under lean production and thus there would be little or no ending inventory.
this method eliminate waste and inefficiency in its manufacturing operations

The answer of question two should refer clearly to the JIT as a mean feature of
Lean Production