Net income reported under absorption costing will exceed net income reported under variable costing for a given period if
A)production equals sales for that period.
B)sales exceed production for that period.
C)production exceeds sales for that period.
D)variable overhead exceeds fixed overhead for that period.

Question

Quizplus · Accepted Answer

Under absorption costing, fixed manufacturing overhead is allocated to each unit produced, so when production exceeds sales, some of these costs are deferred in inventory and not immediately expensed. This deferral of expense increases net income compared to variable costing, where all fixed overhead is expensed in the period incurred, regardless of the level of sales.

Net Income Reported Under Absorption Costing Will Exceed Net Income