Which of the following is true of absorption costing?
A) It enables a manager to decrease margins and operating income by producing more beginning inventory.
B) It enables a manager to increase margins and operating income by producing more beginning inventory.
C) It enables a manager to decrease margins and operating income by producing more and building ending inventory.
D) It enables a manager to increase margins and operating income by producing more and building ending inventory.

Question

Quizplus · Accepted Answer

Absorption costing allocates fixed overhead costs to units produced, which means that producing more units will result in a lower fixed overhead cost per unit. This leads to higher margins and operating income if the additional units produced are sold, or if they are built into ending inventory for future sales. Therefore, choice D is correct. Choices A, B, and C are incorrect as they do not reflect the true nature of absorption costing.

Which of the Following Is True of Absorption Costing