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.

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Definitions:

Industry Entry

The process by which a new competitor or business enters into an industry, facing various barriers such as high startup costs, regulatory requirements, and competition.

Short Run

A period of time during which at least one of a firm's inputs is fixed and cannot be changed.

Normal Return

The minimum profit necessary to keep a company in business, equating to the opportunity cost of capital.

Own Capital

The funds or assets personally invested by the owners into a business, distinct from borrowed capital.