Consider the following statements about absorption- and variable-costing income:
I. Yearly income reported under absorption costing will differ from income reported under variable costing if production and sales volumes differ.
II. In the long-run, total income reported under absorption costing will often be close to that reported under variable costing.
III. Differences in income under absorption and variable costing can often be reconciled by multiplying the change in inventory (in units) by the variable manufacturing overhead cost per unit.
Which of the above statements is (are) true?
A) I only.
B) II only.
C) III only.
D) I and II.
E) II and III.

Question

Quizplus · Accepted Answer

I. True, because absorption costing includes fixed manufacturing overhead as part of the product costs, leading to differences in reported income when production and sales volumes differ. II. True, over time, the total income under both methods tends to converge because the fixed manufacturing overhead costs that were deferred in inventory under absorption costing will eventually be recognized as expense when the goods are sold. III. False, the reconciliation is typically done by multiplying the change in inventory by the fixed manufacturing overhead cost per unit, not the variable manufacturing overhead cost per unit.

Consider the Following Statements About Absorption- and Variable-Costing Income