Which of the following statements is not true of absorption costing?
A) When sales equal production, absorption costing yields the same profit as variable costing.
B) When production exceeds sales, absorption costing shows a lower profit than variable costing does.
C) When sales exceed production, absorption costing shows a lower profit than variable costing does.
D) Absorption costing allocated both fixed and variable overheads to product cost.

Question

Quizplus · Accepted Answer

When production exceeds sales, absorption costing actually shows a higher profit than variable costing because the fixed manufacturing overhead costs are spread over more units, reducing the cost per unit and increasing the inventory value. This results in less expense being recognized in the current period under absorption costing compared to variable costing, where all fixed manufacturing overheads are expensed in the period they are incurred.

Which of the Following Statements Is Not True of Absorption