Assuming sales prices and cost behaviour remain unchanged, when absorption costing is used, overproducing creates which of the following situations?
A)a buildup of inventory levels
B)higher net income
C)less fixed costs on the income statement
D)all of the above

Question

Quizplus · Accepted Answer

When absorption costing is used, overproducing results in a buildup of inventory levels because products not sold are stored as inventory. This leads to higher net income because some of the fixed manufacturing costs are allocated to the inventory and not expensed in the current period, thus reducing the total costs recognized on the income statement. Consequently, there are less fixed costs on the income statement because they are deferred in the inventory account.

Assuming Sales Prices and Cost Behaviour Remain Unchanged, When Absorption