The Level of Inventory of a Manufactured Product Has Increased

question 151

Multiple Choice

The level of inventory of a manufactured product has increased by 8,000 units during a period. The following data are also available: What would be the effect on income from operations if absorption costing is used rather than variable costing?

• A) $80,000 decrease
• B) $80,000 increase
• C) $104,000 increase
• D) $104,000 decrease

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Definitions:

Income Summary Account

A temporary account used to accumulate all income and expense accounts before transferring the net amount to retained earnings at the end of an accounting period.

Retained Earnings

The portion of net earnings not distributed as dividends to shareholders, but retained by the company to be reinvested in its core business or to pay debt.

Permanent Account

Accounts that carry their ending balances over into the next accounting period, typically including assets, liabilities, and equity accounts.

Statement Of Changes

A financial statement that shows how a company's equity has changed during a specific period due to various factors like profits, losses, and dividend payments.