Powell Corporation produced 80,000 units and sold 78,000 units in its first year of operations. If the company had produced 1,000 fewer units, what would have been the effect on operating income under variable and absorption costing?

Question

Quizplus · Accepted Answer

Under variable costing, operating income is not affected by the number of units produced, only by the number of units sold. Under absorption costing, producing fewer units would decrease operating income because fixed manufacturing overhead costs would be spread over fewer units, increasing the cost per unit and reducing income.

Powell Corporation Produced 80,000 Units and Sold 78,000 Units in Its