When Sales Are Constant, but the Number of Units Produced

question 32

Multiple Choice

When sales are constant, but the number of units produced fluctuates, net operating income determined by the absorption costing method will:

• A)tend to fluctuate in the same direction as fluctuations in the number of units produced.
• B)tend to remain constant.
• C)tend to fluctuate in the opposite direction as fluctuations in the number of units produced.
• D)fluctuate without any relation to the number of units produced.

---

Definitions:

Financial Statements

Formal records of the financial activities and position of a business, including the balance sheet, income statement, and cash flow statement.

Accounting System

A structured process of collecting, recording, summarizing, and reporting financial transactions of a business or individual.

Accrual Basis of Accounting

An accounting method where income and expenses are recorded when they are earned or incurred, regardless of when the cash transactions occur.

Cash Basis

An accounting method where revenue is recorded when cash is received, and expenses are recorded when cash is paid out.