Which of the following situations would cause variable-costing income to be higher than absorption-costing income?
A) Units sold equaled 39,000 and units produced equaled 42,000.
B) Units sold and units produced were both 42,000.
C) Units sold equaled 55,000 and units produced equaled 49,000.
D) Sales prices decreased by $7 per unit during the accounting period.
E) Selling expenses increased by 10% during the accounting period.

Question

Quizplus · Accepted Answer

Under variable costing, only variable manufacturing costs are included in product costs. When more units are sold than produced, the company is selling products that were part of the beginning inventory. This means the fixed manufacturing overhead cost of these units has already been expensed in the previous period under variable costing. Therefore, when units sold exceed units produced, variable-costing income is higher because fewer fixed manufacturing overhead costs are allocated to the cost of goods sold compared to absorption costing, where fixed costs are allocated to all units produced, regardless of sales volume.

Which of the Following Situations Would Cause Variable-Costing Income to Be