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Answer (C) is correct . Absorption (full) costing is the accounting method that considers all manufacturing costs as product costs. These costs include variable and fixed manufacturing costs whether direct or indirect. Variable (direct) costing considers only variable manufacturing costs to be product costs, i.e., inventoriable. Fixed manufacturing costs are considered period costs and are expensed as incurred. If production is increased without increasing sales, inventories will rise. However, all fixed costs associated with production will be an expense of the period under variable costing. Thus, this action will not artificially increase profits and improve the manager’s review.

Answer (A) is incorrect because Increasing inventories increases absorption costing profit as a result of capitalizing fixed factory overhead.
Answer (B) is incorrect because When sales volume exceeds production, inventories decline. Thus, fixed factory overhead expensed will be greater under absorption costing.
Answer (D) is incorrect because Under variable costing, operating profit is a function of sales. Under absorption costing, it is a function of sales and production.