When the number of units in work-in-process and finished goods inventories increase,absorption costing operating income will typically be greater than variable costing operating income.

Question

Quizplus · Accepted Answer

Absorption costing includes fixed manufacturing overhead costs in inventory values and cost of goods sold, resulting in higher operating income when inventories increase. Variable costing only includes variable manufacturing costs in inventory values and cost of goods sold, resulting in lower operating income when inventories increase.

When the Number of Units in Work-In-Process and Finished Goods