Under the Absorption Costing Method, a Company Can Increase Profits

question 124

True/False

Under the absorption costing method, a company can increase profits by increasing production rather than by increasing sales.

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Definitions:

Cost-To-Retail Ratio

A calculation used in inventory accounting that helps determine the ending inventory value under the retail inventory method, comparing the cost of goods to their retail price.

Ending Inventory

The worth of items available for selling when an accounting period ends, determined by adding the starting inventory to purchases and then subtracting the cost of goods sold.

Lower Of Cost

An accounting principle that dictates that inventory and other assets should be reported at the lower of their historical purchase cost or current market value.

Market Method

A valuation method used to determine the fair value of assets and liabilities, based on their selling prices in active markets.