Under absorption costing,if sales remain constant from period 1 to period 2,the company will report a larger income in period 2 when
A)period 2 production exceeds period 1 production.
B)period 1 production exceeds period 2 production.
C)variable production costs are larger in period 2 than period 1.
D)fixed production costs are larger in period 2 than period 1.

Question

Quizplus · Accepted Answer

Under absorption costing, when production exceeds sales, some of the fixed manufacturing costs are deferred in inventory to the next period. Therefore, if production in period 2 exceeds production in period 1, the company will report a larger income in period 2 because a portion of the fixed costs from period 2 is allocated to the inventory and not expensed in the period, reducing the cost of goods sold and increasing net income.

Under Absorption Costing,if Sales Remain Constant from Period 1 to Period