The chief executive officer told Nick, the production manager at BRS Ltd, to reduce costs and increase profits. In response, Nick decided to produce more units for inventory. BRS is most likely using
A) Variable costing.
B) Throughput costing.
C) Absorption costing.
D) Capacity-based costing.

Question

Quizplus · Accepted Answer

Nick's decision to produce more units for inventory suggests that BRS Ltd is using absorption costing. Absorption costing involves allocating all manufacturing costs, including fixed overheads, to the products. This encourages companies to produce more units to spread fixed costs over a larger number of units and reduce the cost per unit. This can increase inventory levels, which may not necessarily increase profits as inventory carries additional costs such as storage, insurance, and potentially obsolescence.

The Chief Executive Officer Told Nick, the Production Manager at BRS