Phantom profits result when absorption costing is used and production exceeds sales.

Name: Phantom profits result when absorption costing is used and production exceeds sales.
Brand: Quizplus
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Question

Quizplus · Accepted Answer

When absorption costing is used, fixed manufacturing overhead costs are allocated to the units produced. If production exceeds sales, more fixed manufacturing overhead costs are allocated to the units produced than were actually sold. This leads to a higher reported net income and creates phantom profits.

Phantom Profits Result When Absorption Costing Is Used and Production