Under the absorption costing method, a company can increase profits by increasing production rather than by increasing sales

Question

Quizplus · Accepted Answer

Under absorption costing, fixed manufacturing overhead costs are allocated to each unit produced. Therefore, increasing production spreads these fixed costs over more units, lowering the cost per unit and increasing the inventory value, which can increase profits without necessarily increasing sales, as long as the additional inventory is eventually sold.

Under the Absorption Costing Method, a Company Can Increase Profits