The computation of absorption-costing gross profit always involves subtracting
A)all current-year fixed manufacturing overhead.
B)some, but not all, current-year fixed manufacturing overhead.
C)all fixed manufacturing overhead applied to units sold in the current year.
D)no fixed manufacturing overhead.

Question

Quizplus · Accepted Answer

Absorption-costing gross profit includes all fixed manufacturing overhead applied to units sold in the current year. This is because absorption costing includes all manufacturing costs (variable and fixed) in the cost of the product. Therefore, when calculating gross profit, all fixed overhead that was applied to units sold need to be included in the cost of goods sold, and subtracted from revenue to arrive at gross profit.

The Computation of Absorption-Costing Gross Profit Always Involves Subtracting