If a company's levels of total fixed costs and unit variable costs remain unchanged from one year to the next, under which costing method is it possible for managers to manipulate net income through production?
A)Variable costing
B)Full costing
C)Both variable and full costing
D)Neither variable nor full costing

Question

Quizplus · Accepted Answer

Under full costing (also known as absorption costing), fixed manufacturing overhead costs are allocated to each unit of production. This means that if a company produces more units than it sells, some of the fixed costs are included in the ending inventory on the balance sheet rather than being expensed in the current period. This can lead to a situation where managers can manipulate net income by altering the level of production, as increasing production will allocate more fixed costs to inventory, reducing the costs expensed and thus increasing net income. Variable costing, on the other hand, expenses all fixed costs in the period they are incurred, regardless of the level of production or sales, making it less susceptible to manipulation through changes in production levels.

If a Company's Levels of Total Fixed Costs and Unit