In absorption costing, the managers may increase operating income by producing ____________?
Correct answer: B. more inventory units
- A. more sales
- B. more inventory units
- C. less inventory units
- D. less sales
Explanation
Absorption costing assigns fixed manufacturing overhead to units produced, so producing more units can place more fixed cost in inventory and defer its expense. This temporarily increases reported operating income when production exceeds sales.
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About Cost Accounting
Cost accounting measures and analyses the cost of producing goods or providing services for planning, control and pricing decisions. It covers direct and indirect costs, fixed and variable costs, job and process costing, break-even analysis, marginal costing, overhead allocation, and the difference between product cost and period cost.
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