When the units produced exceeds the units sold
A)Ending inventory on the balance sheet is lower under absorption costing than under variable costing.
B)Ending inventory on the balance sheet is higher under absorption costing than under variable costing.
C)Ending inventory on the balance sheet is the same under absorption costing and variable costing.
D)Cannot be determined with the information given.

Question

Quizplus · Accepted Answer

Under absorption costing, fixed manufacturing overhead costs are included in the calculation of inventory costs, while under variable costing, they are treated as period expenses. Therefore, if the production levels exceed sales, more fixed manufacturing overhead will be allocated to the ending inventory under absorption costing, resulting in a higher ending inventory value compared to variable costing.

When the Units Produced Exceeds the Units Sold