When the balance in ending finished goods inventory increases, net income under absorption costing
A)is lower than under direct costing.
B)is the same under direct costing.
C)is higher than under direct costing.
D)is unaffected by the increase.

Question

Quizplus · Accepted Answer

Under absorption costing, all manufacturing costs (including fixed manufacturing overhead) are included in the cost of goods sold calculation. Therefore, any increase in ending finished goods inventory will result in a lower cost of goods sold and a higher net income compared to direct costing, where fixed manufacturing overhead costs are not included in the cost of goods sold calculation.

When the Balance in Ending Finished Goods Inventory Increases, Net