Net operating income is affected by the number of units produced when absorption costing is used.

Question

Quizplus · Accepted Answer

In absorption costing, net operating income is calculated by subtracting cost of goods sold (which includes both variable and fixed manufacturing costs) and operating expenses from total revenues. As a result, the number of units produced can affect the allocation of fixed manufacturing cost per unit, which can impact the cost of goods sold and hence net operating income.

Net Operating Income Is Affected by the Number of Units