Costs and cost behaviour — practice question

At the close of its first year of operation, a manufacturer has inventory. What effect will this have on profit if the manufacturer is deciding between marginal costing and absorption costing?

• AThe profit is the same if using either marginal costing or absorption costing.
• BThe profit using absorption costing is higher because the inventory includes fixed overheads.
• CThe profit using absorption costing is lower because all the fixed overheads are deducted.
• DThe profit using absorption costing is lower because fixed overheads are under absorbed.