Net operating income is not affected by changes in production when absorption costing is used.

Question

Quizplus · Accepted Answer

Net operating income under absorption costing is affected by changes in production because fixed manufacturing overhead costs are included in cost of goods sold and inventory. As production increases, a larger portion of fixed overhead costs are allocated to the products, causing net operating income to increase. Conversely, if production decreases, a smaller portion of fixed overhead costs are allocated to the products, causing net operating income to decrease.

Net Operating Income Is Not Affected by Changes in Production