The correct answer is: A. decrease in costing profit
Absorption costing is a method of accounting for overhead costs in which all manufacturing costs, including overhead, are assigned to products. This is in contrast to variable costing, which only assigns variable costs to products.
Under absorption costing, overhead costs are assigned to products based on a predetermined overhead rate. This rate is calculated by dividing the total estimated overhead costs for the period by the estimated total units produced.
When overhead costs are assigned to products, they increase the cost of goods sold. This, in turn, reduces the gross profit margin. As a result, absorption costing typically results in a lower costing profit than variable costing.
Here is a brief explanation of each option:
- Option A: Decrease in costing profit. This is the correct answer. As explained above, absorption costing results in a lower costing profit than variable costing.
- Option B: Decrease in financial accounts profit. This is incorrect. Financial accounts profit is not affected by the method of accounting used.
- Option C: Increase in costing profit. This is incorrect. As explained above, absorption costing results in a lower costing profit than variable costing.
- Option D: Increase in financial accounts profit. This is incorrect. Financial accounts profit is not affected by the method of accounting used.