Net Income Under Absorption Costing Is Higher Than Net Income

question 2

Multiple Choice

Net income under absorption costing is higher than net income under variable costing

• A) when units produced exceed units sold.
• B) when units produced equal units sold.
• C) when units produced are less than units sold.
• D) regardless of the relationship between units produced and units sold.

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Definitions:

Depreciation

The method of allocating the cost of a tangible asset over its useful life.

Sarbanes-Oxley Act

A U.S. law enacted in 2002 to protect investors by improving the accuracy and reliability of corporate disclosures, following major financial scandals.

Financial Reports

Documents that detail the financial health and performance of a business, including balance sheets, income statements, and cash flow statements.

Rent Expired

The portion of the rental period that has elapsed or the cost of rent that has been used up over a specific accounting period.