A Reason Why Absorption Costing Income Statements Are Sometimes Difficult

question 128

Multiple Choice

A reason why absorption costing income statements are sometimes difficult to interpret is that:

• A) they omit variable expenses entirely in computing net operating income.
• B) they shift portions of fixed manufacturing overhead from period to period according to changing levels of inventories.
• C) they include all fixed manufacturing overhead on the income statement each year as a period cost.
• D) they ignore inventory levels in determining cost of goods sold.

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Definitions:

Housing Supply

The total amount of available housing units in a region at any given time, including rental properties and homes for sale.

Equilibrium Quantity

The level of goods or services available and in demand at the point of price stability.

Equilibrium Price

The price at which the quantity of a good or service demanded by consumers equals the quantity supplied by producers in a market.

Equilibrium Quantity

The quantity of goods or services supplied is exactly equal to the quantity of goods or services demanded in the market.