Management may be tempted to overproduce when using
A) variable costing, in order to increase net income.
B) variable costing, in order to decrease net income.
C) absorption costing, in order to increase net income.
D) absorption costing, in order to decrease net income.

Question

Quizplus · Accepted Answer

With absorption costing, fixed manufacturing costs are included in the cost of each unit produced. This means that producing more units will spread these fixed costs over a larger number of units, reducing the cost per unit and increasing net income. Therefore, management may be tempted to overproduce when using absorption costing in order to increase net income.

Management May Be Tempted to Overproduce When Using