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aimtobeacpa
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Joined: 10 Dec 2009
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Posts: 657
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| Posted: 29 Nov 2011 at 14:43 | IP Logged
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I got little confused regarding when NI is higher
1)production exceeds sales
2)sales exceed production
__________________
BEC-74,82(lost credit),78
FAR-67,80
AUD-75
REG-68,72,79
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milkatz
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Location: United States
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| Posted: 29 Nov 2011 at 15:38 | IP Logged
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It has been a few months since I took BEC, so you may want to get the
following confirmed.
Just think INVENTORY = INCOME.
So if production is greater than sales, you have more inventory. More
inventory is more income. Make sense?
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milkatz
FAR 11/2010 - 82
AUD 04/2011 - 88
BEC 07/2011 - 84
REG 11/2011 -82
Passed all four on the first try!!!!!
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striveforcpa
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Joined: 28 Nov 2011
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| Posted: 29 Nov 2011 at 15:58 | IP Logged
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It depends on whether you are using absorption or
variable costing methods; if absorption is used, an
increase in inventory levels (production is more than
sales)causes fixed costs to be held in inventory; so
income is higher while a decrease in inventory levels
(sales is more than production) causes more fixed costs
to be charged to COGS which in turn lowers income; on the
other hand, if you use variable costing the same amount
of fixed costs will be deducted so it doesn't matter if
production is less or more than sales; in order words, NI
is a function of sales ONLY;
Hope this helps
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Topic: Urgent doubt
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