Expected sales for next year for the Brady Division are 120,000 units.Drew Carey, the manager of the Brady Division, is under pressure to improve the performance of the Division.As he plans for next year, he has to decide whether to produce 120,000 units or 140,000 units.The Brady Division will have higher net income, if Drew Carey decides to
A)produce 140,000 units if income is measured under absorption costing.
B)produce 140,000 units if income is measured under variable costing.
C)produce 120,000 units if income is measured under absorption costing.
D)produce 120,000 units if income is measured under variable costing.

Question

Quizplus · Accepted Answer

Under absorption costing, fixed manufacturing costs are spread over all units produced, so producing more units (140,000) will allocate these costs over more units, reducing the cost per unit and increasing net income if not all units are sold.

Expected Sales for Next Year for the Brady Division Are