If production exceeds sales,absorption costing net income exceeds variable costing net income.

Question

Quizplus · Accepted Answer

Absorption costing includes fixed manufacturing overhead in product costs, which means that if production exceeds sales, more of the fixed costs are allocated to inventory instead of being expensed in the current period. This results in higher inventory values and therefore higher net income under absorption costing compared to variable costing, which only includes variable manufacturing costs in product costs.

If Production Exceeds Sales,absorption Costing Net Income Exceeds Variable Costing