When Units Produced Exceed Units Sold, Income Under Absorption Costing

question 45

True/False

When units produced exceed units sold, income under absorption costing is higher than income under variable costing.

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Definitions:

Direct Method

A costing method that directly allocates service department costs to producing departments without any intermediate allocation steps.

Operating Activities

Refers to the primary revenue-generating activities of a business, typically including sales, service delivery, and associated costs.

Indirect Method

A way of preparing a cash flow statement where net income is adjusted for non-cash transactions and changes in working capital.

Cash Flows

The cumulative sum of funds moving in and out of a company, particularly regarding its ability to meet short-term obligations.