Which of the following formulas can often reconcile the difference between absorption- and variable-costing income?
A) Change in inventory units * predetermined variable-overhead rate per unit.
B) Change in inventory units / predetermined variable-overhead rate per unit.
C) Change in inventory units* predetermined fixed-overhead rate per unit.
D) Change in inventory units / predetermined fixed-overhead rate per unit.
E) (Absorption-costing income - variable-costing income) * fixed-overhead rate per unit.

Question

Quizplus · Accepted Answer

The difference between absorption- and variable-costing income is often reconciled by the formula: Change in inventory units × predetermined fixed-overhead rate per unit. This is because absorption costing includes all manufacturing costs, including fixed overhead, in the cost of a product, while variable costing includes only variable manufacturing costs. The change in inventory levels affects how much fixed overhead is allocated to cost of goods sold under absorption costing.

Which of the Following Formulas Can Often Reconcile the Difference