A reason why absorption costing income statements are sometimes difficult to interpret is that:
A) they omit variable expenses entirely in computing net operating income.
B) they shift portions of fixed manufacturing overhead from period to period according to changing levels of inventories.
C) they include all fixed manufacturing overhead on the income statement each year as a period cost.
D) they ignore inventory levels in determining cost of goods sold.

Question

Quizplus · Accepted Answer

Absorption costing income statements allocate fixed manufacturing overhead to units produced and shift portions of it from period to period according to changing levels of inventories. This can make it difficult to interpret changes in net operating income as variations in production levels can cause significant fluctuations in the allocation of fixed overhead costs.

A Reason Why Absorption Costing Income Statements Are Sometimes Difficult