When Absorption Costing Is Used, Management May Be Tempted to Overproduce

question 35

True/False

When absorption costing is used, management may be tempted to overproduce in a given period in order to increase net income.

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Definitions:

Money Supply

The aggregate quantity of monetary assets within an economy at a determined point in time.

Required Reserve Ratio

The fraction of deposits that banks are obligated to hold in reserve, either in their vaults or at the central bank, and not loan out.

Excess Reserves

The funds that banks hold over and above the required reserve ratio set by the central bank.

Money Supply

The overall sum of financial resources present in an economy at a given moment.