Question

Which of the following statements is true concerning income if production exceeds units sold?

1) Income will be higher than expenses
2) Income will be lower than expenses
3) Income will be equal to expenses
4) Cannot be determined

Answer 1

The true relationship between income and expenses when production exceeds units sold cannot be determined without further context since it depends on various factors such as the accounting method used and the specific timing of revenue and cost recognition.

Step-by-step explanation:

When production exceeds units sold, inventory increases, which increases costs for the unsold units, however, this does not automatically lead to income being higher, lower, or equal to expenses, as it largely depends on the accounting method used (like accrual or cash basis) and the circumstances around the sales and production.

In conclusion, the question of whether income will be higher, lower, or equal to expenses when production exceeds units sold cannot be conclusively answered without additional context—it cannot be determined with the information given.