When production is equal to sales, which of the following is TRUE?
Correct answer: A. No change occurs to inventories for either use absorption costing or variable costing methods
- A. No change occurs to inventories for either use absorption costing or variable costing methods
- B. The use of absorption costing produces a higher net income than the use of variable costing
- C. The use of absorption costing produces a lower net income than the use of variable costing
- D. The use of absorption costing causes inventory value to increase more than they would though the use of variable costing
Explanation
When production equals sales, opening and closing inventory quantities are unchanged, so absorption and variable costing report the same inventory movement and normally the same profit. Absorption costing creates profit differences only when inventory levels change.
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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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