Operating income under absorption costing is higher than operating income under variable costing
A)always, no matter how many units are sold and produced.
B)when units produced equal units sold.
C)when units produced are more than units sold.
D)when units produced are less than units sold.

Question

Quizplus · Accepted Answer

Under absorption costing, fixed manufacturing overhead is included in the cost of inventory. When units produced exceed units sold, some fixed overhead costs are deferred in inventory, leading to higher operating income compared to variable costing, where all fixed overhead is expensed in the period incurred.

Operating Income Under Absorption Costing Is Higher Than Operating Income