For a period during which the quantity of inventory at the end was smaller than that at the beginning, income from operations reported under variable costing will be larger than income from operations reported under absorption costing.

Question

Quizplus · Accepted Answer

This statement is true. Under variable costing, only variable manufacturing costs are included in the cost of goods sold, whereas under absorption costing both variable and fixed manufacturing costs are included. Therefore, if the ending inventory is smaller than the beginning inventory, more fixed manufacturing costs will be expensed in the period under absorption costing, resulting in a lower income from operations.

For a Period During Which the Quantity of Inventory at the End