When the Number of Units Sold Exceed the Number of Units

question 88

Multiple Choice

When the number of units sold exceed the number of units produced,income reported under absorption costing will be lower than variable costing.Which of the following gives the best justification of the above statement?

• A)Income under absorption costing is always less than income reported using variable costing,regardless of the number of units produced.
• B)Income under absorption costing is always more than income reported using variable costing,regardless of the number of units produced.
• C)The fixed overhead cost deferred in ending inventory is greater than the fixed overhead cost recognized from beginning inventory.
• D)The fixed overhead cost deferred in ending inventory is less than the fixed overhead cost recognized from beginning inventory.
• E)Fixed overhead is treated as a period cost under absorption costing.

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Definitions:

Unlevered Cost

The cost of capital or investment returns without the impact of borrowing or leveraging financial leverage.

Annual Coupon

The yearly interest payment paid to bondholders, typically based on a percentage of the bond's face value.

Expected EBIT

The projected Earnings Before Interest and Taxes, an estimate of a company's profit excluding interest and income tax expenses.

Book Value

The net value of a company's assets minus its liabilities and preferred stock, representing the value of the company according to its financial statements.