Exeter Mfg. Co. introduced a new mass-produced specialty product early in the year. Production and sales of this product for the first four months are as follows: Month Units Produced Units Sold
1 800 600
2 1,100 800
3 1,200 1,100
4 1,000 1,400
The firm's budgeted fixed overhead is $200,000, and budgeted output is 1,000 units per month. The volume variance, if any, is carried forward month-by-month and closed at the end of the year. When 1,000 units are produced and sold, expected monthly operating income is $40,000.
In which month(s)was variable costing income lower than absorption costing income?

Question

Quizplus · Accepted Answer

Variable costing income is lower than absorption costing income when inventory increases, which occurs in months 1, 2, and 3.