If more units are produced than are sold during a period variable costing income
A) will be greater than absorption costing income.
B) will be less than absorption costing income.
C) will be the same as absorption costing income.
D) may be either greater or less than absorption costing income.

Question

Quizplus · Accepted Answer

In variable costing, only the variable manufacturing costs are included in the cost of goods sold. If more units are produced than are sold, the fixed manufacturing costs will be included in the ending inventory under variable costing. However, under absorption costing, both fixed and variable manufacturing costs are included in the cost of goods sold. Therefore, if more units are produced than are sold, the amount of fixed manufacturing costs allocated to each unit sold will be higher under absorption costing, causing absorption costing income to be higher than variable costing income.

If More Units Are Produced Than Are Sold During a Period