4. The increase in production in Year 2, in the face of level sales, caused a
buildup of inventory and a deferral of a portion of Year 2’s fixed manu-
facturing overhead costs to the next year. This deferral of cost relieved
Year 2 of $60,000 (5,000 units × $12 per unit) of fixed manufacturing
overhead cost that it otherwise would have borne. Thus, net operating
income was $60,000 higher in Year 2 than in Year 1, even though the
same number of units was sold each year. In sum, by increasing produc-
tion and building up inventory, profits increased without any increase in
sales or reduction in costs. This is a major criticism of the absorption
costing approach.
Bạn đang xem 4. - SOLUTIONS TO QUESTION MANAGERIAL ACCOUNTING CH07 VARIBLE COSSTING TOOL FOR MANAGEMENT