Net income under variable costing will differ from reported net income under absorption costing when finished good inventory levels change.

Question

Quizplus · Accepted Answer

This is true because under variable costing, fixed manufacturing overhead is treated as a period expense and not included in the cost of producing finished goods. As a result, changes in finished goods inventory levels will affect the period's expenses, and subsequently impact net income differently than under absorption costing where fixed manufacturing overhead is absorbed into the cost of producing finished goods.

Net Income Under Variable Costing Will Differ from Reported Net