Under Absorption Costing, a Portion of Fixed Manufacturing Overhead Cost

question 33

True/False

Under absorption costing, a portion of fixed manufacturing overhead cost is released from inventory when production volume exceeds sales volume.

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Definitions:

Sunk Cost

An expenditure that has already been incurred and cannot be recovered, and should not affect future decisions.

Defective Units

Products that fail to meet quality standards or specifications and are often unsellable or subject to returns and repairs.

Salvage Company

A business specialized in saving, recovering, and selling the usable parts of damaged, inoperative, or discarded goods.

Incremental Cost

The additional cost incurred to produce one more unit of a product or service.