Under Which of the Following Conditions Is Net Income Higher

question 4

Multiple Choice

Under which of the following conditions is net income higher under absorption costing (relative to variable costing) ?

• A)Current period production exceeds sales.
• B)Inventory is reduced during the current period.
• C)Sales prices are rising.
• D)Net income is higher under absorption costing under all conditions.

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Definitions:

Overstatement

An error or inaccuracy in accounting records or financial statements where the value of assets, revenues, or profit is recorded higher than the actual amounts.

Net Realizable Value

The estimated selling price of goods minus the cost of their sale or disposal, used in determining the value of inventory on the balance sheet and for assessing asset impairment.

Write-Down

An accounting practice of reducing the book value of an asset because it's overvalued compared to the market value.

Financial Statements

Compiled reports detailing the financial position, performance, and cash flows of a business over a specific period.