When Production Is Less Than Sales,the Operating Income Will Be

question 66

Multiple Choice

When production is less than sales,the operating income will be lower under absorption costing than variable costing.Assume zero ending inventories.Which of the following gives the correct reason for the above statement?

• A)all costs incurred have been recorded as expenses
• B)a portion of the fixed manufacturing overhead is still in the ending Finished Goods Inventory account
• C)the units in the beginning finished goods inventory have manufacturing fixed costs assigned to them
• D)fixed manufacturing costs have not been considered while calculating the operating profits

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Definitions:

Inventory Obsolescence

Refers to the reduction in the value of inventory items due to them becoming outdated, no longer useful, or unsalable.

Opportunity Cost

The expense associated with choosing not to pursue the second-best option during decision-making.

Insurance Premium

The amount of money an individual or business must pay for an insurance policy, securing protection or coverage against specific risks.

Credit Period

The length of time allowed by a creditor for a borrower to make payment on a merchandise or loan without incurring interest or penalties.