If the number of units sold is greater than the number of units produced,
A)full costing and variable costing will yield the same net income.
B)variable costing will assign some fixed manufacturing costs to the units in ending inventory.
C)net income will be higher under variable costing than under full costing.
D)inventory levels will increase.

Question

Quizplus · Accepted Answer

When the number of units sold is greater than the number of units produced, under variable costing, all fixed manufacturing costs are expensed in the period they are incurred. Under full costing (also known as absorption costing), some fixed manufacturing costs are allocated to the units produced and included in inventory, becoming an expense only when the goods are sold. If sales exceed production, the fixed costs allocated to the units sold under full costing will be higher than under variable costing, where all fixed costs are expensed. Therefore, net income will be higher under variable costing because less fixed manufacturing costs are allocated to the cost of goods sold.

If the Number of Units Sold Is Greater Than the Number