A decrease in inventory levels will cause which of the following when comparing operating income under absorption and variable costing?

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Under variable costing, fixed manufacturing overhead is expensed in the period incurred, not included in the product cost. When inventory levels decrease, fewer units are available to absorb the fixed manufacturing overhead costs, leading to a higher operating income under variable costing compared to absorption costing, where fixed overhead is allocated to each unit produced and included in inventory costs.

A Decrease in Inventory Levels Will Cause Which of the Following