What Is a Disadvantage of Absorption Costing

question 49

Multiple Choice

What is a disadvantage of absorption costing?

• A)It is not a useful format for decision making.
• B)It encourages the dumping of inventory.
• C)It reports a lower net income when production is less than sales.
• D)It is difficult to gather the fixed and variable costing information.

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Definitions:

Net Income

The total profit of a company after all revenues and gains are added together and all expenses and losses are subtracted.

Profit Margin

A financial ratio that shows the percentage of sales revenue that remains as profit after all costs and expenses are deducted.

Net Income

The amount of money remaining after all operating expenses, taxes, and costs have been subtracted from total revenues.

Sales

Sales refer to the revenue earned from selling goods or services over a period of time.