Management may be tempted to overproduce
A)when using variable costing, in order to increase net income.
B)when using variable costing, in order to decrease net income.
C)when using absorption costing, in order to increase net income.
D)when using absorption costing, in order to decrease net income.
E)when using absorption costing, in order to decrease their bonus.

Question

Quizplus · Accepted Answer

When using absorption costing, management may be tempted to overproduce in order to increase net income. This is because absorption costing allocates fixed manufacturing costs to units produced, meaning that fixed costs per unit will decrease as production increases. Therefore, producing more units will result in a lower fixed cost per unit, which will increase net income.

Management May Be Tempted to Overproduce