Under absorption costing,which of the following statements is not true?
A)Over production and inventory buildup can occur because of how managers are evaluated and rewarded.
B)The fixed costs per unit decline as more units are produced.
C)Variable inventory costs are treated in the same manner as they are under variable costing.
D)Fixed inventory costs are treated in the same manner as they are under variable costing.
E)All manufacturing costs are assigned to products.

Question

Quizplus · Accepted Answer

Under absorption costing, fixed overhead costs are included as part of the cost of a product and are assigned to inventory. This means that as inventory builds up, more fixed overhead costs are assigned to it, which can result in higher reported profits. This can create an incentive for managers to produce and hold more inventory than is necessary, leading to overproduction and inventory buildup. However, this statement is not true for fixed inventory costs, as they are not treated in the same manner as they are under variable costing. Fixed inventory costs, such as property taxes and insurance premiums for a warehouse, are not assigned to products and instead are expensed in the period they are incurred.

Under Absorption Costing,which of the Following Statements Is Not True