Finlandia Frankfurters (FF),incorporated in Finland,uses variable costing for external reporting.On 1^st January,it is purchased by Belgian Bagels,which uses absorption costing,and FF is obliged to adopt the parent company's accounting method for the purposes of filing consolidated accounts.At the time of the merger,FF had 4,000 units in inventory and production costs remained stable over the following year.Which is true about FF's income in the first post-merger year?

Question

Quizplus · Accepted Answer

When production is less than sales, the inventory decreases, and under absorption costing, some fixed costs remain in the cost of goods sold, reducing income compared to variable costing.

Finlandia Frankfurters (FF),incorporated in Finland,uses Variable Costing for External Reporting