Under absorption costing, when production is less than sales volume, the profits, using variable costing procedures, will be:
A) less than
B) greater than
C) equal to
D) randomly different than

Question

Quizplus · Accepted Answer

Under absorption costing, fixed manufacturing costs are included in the cost of goods sold, while under variable costing, only variable manufacturing costs are included in the cost of goods sold. When production is less than sales volume, there will be some fixed manufacturing costs that were incurred but not included in the cost of goods sold. As a result, the cost of goods sold under absorption costing will be higher than under variable costing, leading to lower profits.

Under Absorption Costing, When Production Is Less Than Sales Volume