Question

A manufacturing company using full-absorption costing can increase net income by which of the following. A) Increasing production and increasing ending inventory at the end of the year. B) Decreasing the inventory C) Writing ending inventory down to its fair value. D) All of the above.

Answer 1

correct option is"A" -Increasing production and increasing ending inventory at the end of the year

Increasing production will result in lower fixed manufacturing overhead cost (allocated on the basis of number of units produced ) .So if ending inventory is increased ,less fixed manufacturing overhead will be charged to income statement (as number of units sold will be less then produced and so as cost of goods sold ) resulting in increased net income .

Decreasing inventory means more units are sold (more cost of sales )resulting in decreasing net income

write off will decrease net income.