Assuming That the Number of Units Produced Is Less Than

question 102

Multiple Choice

Assuming that the number of units produced is less than the number of units sold, which of the following statements is true when comparing net operating income using absorption and variable costing?

• A) Absorption costing will yield a higher net operating income.
• B) Variable costing will yield a higher net operating income.
• C) Net operating income will be the same under both methods.
• D) The sales price per unit will be less using absorption costing.

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Definitions:

Outputs

The products or services generated by a business or an economic system.

Inputs

The resources, such as capital, labor, and materials, used in the production process to create goods or services.

Marginal Product

The increase in output that occurs when one more unit of a certain input is added, with all other inputs remaining the same.

Profit Maximization

The process or strategy used by businesses to determine the price and output level that leads to the highest profit.