When production exceeds sales
A)Ending inventory under variable costing will exceed ending inventory under absorption costing
B)Ending inventory under absorption costing will exceed ending inventory under variable costing.
C)Ending inventory under absorption costing will be equal to ending inventory under variable costing.
D)Ending inventory under absorption costing may either exceed, be equal to, or be less than ending inventory under variable costing.

Question

Quizplus · Accepted Answer

Absorption costing includes fixed manufacturing overhead in product costs, while variable costing only includes variable manufacturing costs in product costs. When production exceeds sales, there will be more fixed manufacturing overhead costs that are included in ending inventory under absorption costing. Therefore, ending inventory under absorption costing will exceed ending inventory under variable costing.

When Production Exceeds Sales