If a Company Produces More Units Than It Sells in a Period

question 9

Multiple Choice

If a company produces more units than it sells in a period, net operating income under variable costing will:

• A) Be the same as it would be under absorption costing
• B) Be less than it would be under absorption costing
• C) Be equal to the net operating income using absorption costing plus selling and administrative costs
• D) Be equal to the net operating income using absorption costing less fixed manufacturing costs

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Definitions:

Owners' Equity

Owners' equity, similar to stockholders' equity, is the proportion of a company's total value that belongs to its owners or shareholders, reflecting the net assets after liabilities have been deducted.

Accounts Receivable

Funds that a business is due to receive from its clients for products supplied or services rendered, but which have not been paid for yet.

Capital Balances

The amount of money that owners have invested in a company, plus any retained earnings or minus any losses.

Partnership

An authorized business setup in which a group of individuals jointly manage the operation and distribution of profits.