When monthly production volume is constant and sales volume is less than production, net income determined with variable costing procedures will
A)always be greater than net income determined using absorption costing.
B)always be less than net income determined using absorption costing.
C)be equal to net income determined using absorption costing.
D)be equal to contribution margin per unit times units sold.

Question

Quizplus · Accepted Answer

Under variable costing procedures, only variable manufacturing costs are included in the cost of goods sold, while fixed manufacturing costs are treated as period expenses. Therefore, when sales volume is less than production, the fixed manufacturing costs that were incurred will be treated as period expenses and will not be included in the cost of goods sold. As a result, net income determined with variable costing procedures will be lower than net income determined using absorption costing, which includes both variable and fixed manufacturing costs in the cost of goods sold.

When Monthly Production Volume Is Constant and Sales Volume Is