If the finished goods inventory decreases during the period, the reported net income will be larger under variable costing than under absorption costing.

Question

Quizplus · Accepted Answer

Under variable costing, only variable manufacturing costs are included in the cost of goods sold, while fixed manufacturing costs are treated as period expenses. Therefore, if the finished goods inventory decreases during the period, fewer fixed costs will be allocated to the cost of goods sold, resulting in a larger net income compared to absorption costing, which allocates fixed manufacturing costs to the cost of goods sold.

If the Finished Goods Inventory Decreases During the Period, the Reported