For a period during which the quantity of product manufactured equals the quantity sold,income from operations reported under absorption costing will be smaller than the income from operations reported under variable costing.

Question

Quizplus · Accepted Answer

Absorption costing allocates fixed manufacturing overhead costs to units of product, regardless of whether they are sold or not, while variable costing only includes variable costs, such as direct materials and direct labor. Therefore, during a period where the quantity sold equals the quantity manufactured, absorption costing will report higher net income as fixed costs are spread over more units.

For a Period During Which the Quantity of Product Manufactured