If a firm uses absorption costing,which of the following actions taken by management would increase gross profit even if sales do not increase?
A)Decreasing production and using items from inventory for sales.
B)Increasing production and building up inventory.
C)Increasing fixed costs by investing in new production technology.
D)Increasing variable costs by purchasing higher-quality materials.

Question

Quizplus · Accepted Answer

When using absorption costing, fixed manufacturing overhead costs are included in the cost of inventory. Therefore, increasing production and building up inventory would increase the amount of fixed manufacturing overhead costs included in the cost of goods sold, resulting in a higher gross profit even if sales do not increase. The other choices would not necessarily increase gross profit.

If a Firm Uses Absorption Costing,which of the Following Actions