Which of the following correctly represents how to calculate absorption net income assuming no change in the fixed overhead rate?
A) Variable net income - (Change in Inventory units x Fixed Overhead Rate)
B) Variable net income + (Change in Inventory units x Fixed Overhead Rate)
C) Variable net income - (Change in Inventory units x Variable Overhead Rate)
D) Variable net income + (Change in Inventory units x Variable Overhead Rate)
E) None of the above

Question

Quizplus · Accepted Answer

Absorption net income can be calculated from variable net income by adding the fixed overhead costs allocated to the change in inventory. This is because under absorption costing, fixed manufacturing overhead is allocated to products and included in inventory costs, thus affecting net income when inventory levels change.

Which of the Following Correctly Represents How to Calculate Absorption