4. A manager may prefer to take the statement prepared under the ab-
sorption approach in part (2), since it shows a profit for the month. As
long as inventory levels are rising, absorption costing will report higher
profits than variable costing. Notice in the situation above that the com-
pany is operating below its theoretical break-even point, but yet reports
a profit under the absorption approach. The ethics of this approach are
debatable.
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