Income statements, using absorption costing, are sometimes difficult to interpret because they
A)omit variable expenses when computing operating income.
B)shift portions of fixed manufacturing overhead between periods according to changing levels of inventory.
C)include all fixed manufacturing overhead in the calculation of operating income.
D)ignore inventory levels when determining cost of goods sold.

Question

Quizplus · Accepted Answer

Absorption costing allocates fixed manufacturing overhead to both sold and unsold inventory, causing shifts in reported income as inventory levels change.

Income Statements, Using Absorption Costing, Are Sometimes Difficult to Interpret