When production exceeds sales, absorption costing shows a higher profit than variable costing because a portion of fixed costs are charged to inventories and thereby deferred to future periods.

Question

Quizplus · Accepted Answer

When production exceeds sales, some portion of fixed costs are included in the cost of the inventory under absorption costing. This defers these costs to future periods when the inventory is sold, which increases the profit in the current period compared to variable costing. Therefore, the statement is true.

When Production Exceeds Sales, Absorption Costing Shows a Higher Profit