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 included in the cost of producing units. Therefore, increasing production will spread the fixed costs over more units and decrease the per-unit fixed cost. This, in turn, will increase the gross margin per unit and overall profit, even if sales remain constant.

Under the Absorption Costing Method, a Company Can Increase Profits