Under Which of the Following Conditions Is Net Income Higher

question 4

Multiple Choice

Under which of the following conditions is net income higher under absorption costing (relative to variable costing) ?

• A)Current period production exceeds sales.
• B)Inventory is reduced during the current period.
• C)Sales prices are rising.
• D)Net income is higher under absorption costing under all conditions.

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Definitions:

Intra-Entity Inventory Sales

Sales transactions of inventory between divisions or subsidiaries within the same parent company, not affecting consolidated financial results until sold externally.

Upstream

In the context of oil and gas, it refers to exploration and production activities; in supply chain management, it relates to the procurement of raw materials.

Downstream

In business, refers to processes or activities that occur toward the end of a supply chain, often associated with the distribution and sale of finished products.

Equity Method

This involves documenting investments when the investor holds substantial influence over the entity being invested in, without having total control.