Under absorption costing when inventory increases in a year,
A)there are more fixed costs charged to income.
B)there are less fixed costs charged to income.
C)fixed costs in inventory remain the same regardless of inventory changes.
D)fixed costs in inventory are reduced.

Question

Quizplus · Accepted Answer

Under absorption costing, when inventory increases, a portion of the fixed manufacturing costs is allocated to the units produced but not sold. This means these costs are stored in inventory on the balance sheet rather than being expensed on the income statement, leading to less fixed costs being charged to income during the year.

Under Absorption Costing When Inventory Increases in a Year