Other things being equal, income calculated by the variable costing method will exceed that calculated by the absorption method if
A)units produced exceed units sold.
B)units sold exceed units produced.
C)fixed manufacturing costs increase.
D)variable manufacturing costs increase.

Question

Quizplus · Accepted Answer

In variable costing, fixed manufacturing costs are treated as period costs and are not included in the cost of goods sold. As a result, income calculated by variable costing will be higher when units sold exceed units produced because all fixed manufacturing costs of the period will be allocated to units sold. In contrast, under absorption costing, fixed manufacturing costs are allocated to both units sold and units produced. Therefore, income calculated by absorption costing will be higher when units produced exceed units sold. The level of variable manufacturing costs does not affect the difference between income calculated by variable and absorption costing methods.

Other Things Being Equal, Income Calculated by the Variable Costing