Under Absorption Costing When Production Exceeds Sales in a Year

question 36

Multiple Choice

Under absorption costing when production exceeds sales in a year,

• A)inventory values and cost of goods sold are higher than under variable costing.
• B)inventory values and cost of goods sold are lower than under variable costing.
• C)inventory values are lower and cost of goods sold are higher than under variable costing.
• D)inventory values are higher and cost of goods sold are lower than under variable costing.

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Definitions:

Impairment Loss

A charge recognized when the carrying amount of an asset exceeds its recoverable amount, indicating a permanent reduction in the valuation of a company's asset.

Consolidated Balance Sheet

A financial statement showing the total assets, liabilities, and shareholders' equity of a parent company and its subsidiaries as if they were a single entity.

Acquisition Differential

The difference between the cost of acquiring a company and the fair value of its identifiable net assets.

Equity Method

An accounting technique used to record the investments in other companies, where the investment is significant but the investor does not have full control.