The following data were provided by Rider, Inc, which produces a single product: For the year in question, one would expect the net operating income under absorption costing to be:
A)higher than the net operating income under variable costing.
B)lower than the net operating income under variable costing.
C)the same as the net operating income under variable costing.
D)the relation between absorption costing and variable costing net operating incomes cannot be determineD.Manufacturing exceeds sales, so absorption costing net operating income will exceed variable costing net operating income.

Question

The following data were provided by Rider, Inc, which produces a single product:  For the year in question, one would expect the net operating income under absorption costing to be:
A)higher than the net operating income under variable costing. 
B)lower than the net operating income under variable costing. 
C)the same as the net operating income under variable costing. 
D)the relation between absorption costing and variable costing net operating incomes cannot be determineD.Manufacturing exceeds sales, so absorption costing net operating income will exceed variable costing net operating income.

Quizplus · Accepted Answer

Under absorption costing, fixed manufacturing overhead costs are included in the cost of the product and are expensed when the product is sold. This means that when manufacturing exceeds sales, more fixed manufacturing overhead costs are allocated to the products that are sold, resulting in a higher net operating income compared to variable costing where these fixed costs are expensed immediately. Therefore, one would expect the net operating income under absorption costing to be higher than the net operating income under variable costing.

The Following Data Were Provided by Rider, Inc, Which Produces