Chapter 9 - Inventory Costing and Capacity Analysis - Assignment Material - Questions - Page 358: 9-7

Under absorption costing, increased production and higher inventory levels can lead to a decrease in operating income, even with higher sales, due to the increased allocation of fixed manufacturing costs to the inventory. This highlights how absorption costing's treatment of fixed costs can result in profit fluctuations with changes in production levels.

Under absorption costing, increased production and higher inventory levels can lead to a decrease in operating income, even with higher sales, due to the increased allocation of fixed manufacturing costs to the inventory. This highlights how absorption costing's treatment of fixed costs can result in profit fluctuations with changes in production levels.