When comparing the operating incomes between absorption costing and variable costing, and ending finished inventory exceeds beginning finished inventory, it may be assumed that ________.
A) sales decreased during the period
B) variable cost per unit is more than fixed cost per unit
C) there is a favorable production-volume variance
D) absorption costing operating income exceeds variable costing operating income

Question

Quizplus · Accepted Answer

When ending finished inventory exceeds beginning finished inventory, absorption costing operating income is higher than variable costing operating income. This is because absorption costing allocates fixed manufacturing overhead costs to inventory, while variable costing does not. Therefore, the difference in operating income between the two methods will be higher when there is an increase in inventory.

When Comparing the Operating Incomes Between Absorption Costing and Variable