When Sales Exceeds Production, Absorption Costing Shows a Higher Profit

question 50

True/False

When sales exceeds production, absorption costing shows a higher profit than variable costing because a portion of fixed costs are charged to inventories and thereby deferred to future periods.

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Definitions:

Conversion Costs

The combined costs of direct labor and manufacturing overhead, which are incurred to convert raw materials into finished products.

Equivalent Units

A method used in process costing that converts partially completed units into a smaller number of fully completed units.

Manufacturing Costs

The total expenses involved in the process of producing or manufacturing goods, including raw materials, labor, and overhead costs.

Conversion Costs

Expenses related to transforming raw materials into finished goods, typically including labor costs and manufacturing overhead.