Under Absorption Costing When Inventory Increases in a Year

question 9

Multiple Choice

Under absorption costing when inventory increases in a year,

• A)there are more fixed costs charged to income.
• B)there are less fixed costs charged to income.
• C)fixed costs in inventory remain the same regardless of inventory changes.
• D)fixed costs in inventory are reduced.

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Definitions:

Retained Earnings

The portion of net earnings not paid out as dividends but retained by the company for reinvestment.

Year-end Balance Sheet

A financial statement that lists a company's assets, liabilities, and equity at the end of its fiscal year.

Lower of Cost or Market

An accounting principle that states inventory should be recorded at the lower of its historical cost or its current market value.

Inventory Item

Goods or merchandise kept on the premises of a business or warehouse and available for sale or distribution.