Operating income reported under absorption costing will generally exceed operating income reported under variable costing for a given period in which of the following cases?
A) If production equals sales for that period.
B) If production exceeds sales for that period.
C) If sales exceed production for that period.
D) If the variable manufacturing overhead exceeds the fixed manufacturing overheaD.

Question

Quizplus · Accepted Answer

In absorption costing, fixed manufacturing overhead costs are included in the cost of each unit of product. Therefore, if production exceeds sales for a period, some of the fixed manufacturing overhead costs will be deferred in inventory and carried over to future periods under absorption costing. This results in higher reported operating income for the period compared to variable costing, where fixed manufacturing overhead costs are expensed in the period incurred. If production equals sales or sales exceed production, there will be no differences in operating income reported under absorption and variable costing. The amount of variable manufacturing overhead expenses does not affect the difference in operating income reported under the two methods.

Operating Income Reported Under Absorption Costing Will Generally Exceed Operating