Final answer:
When sales are constant, but the number of units produced fluctuates, net operating income determined by the absorption costing method will also fluctuate based on the allocation of fixed manufacturing overhead costs.
Step-by-step explanation:
When sales are constant, but the number of units produced fluctuates, net operating income determined by the absorption costing method will also fluctuate.
Under the absorption costing method, fixed manufacturing overhead costs are absorbed or allocated to each unit of production, resulting in fluctuations in net operating income when the number of units produced changes. This is because the fixed manufacturing overhead costs are spread out and distributed based on the number of units produced.
For example, if a company produces more units, the fixed manufacturing overhead costs will be spread out over a larger number of units, resulting in a lower per unit cost and potentially higher net operating income. Conversely, if the company produces fewer units, the fixed manufacturing overhead costs will be spread out over a smaller number of units, resulting in a higher per unit cost and potentially lower net operating income.