The difference between operating incomes under variable costing and absorption costing centers on how to account for ________.
A) direct materials costs
B) fixed manufacturing costs
C) variable manufacturing costs
D) selling and administrative costs

Question

Quizplus · Accepted Answer

Under variable costing, fixed manufacturing costs are expensed as period costs and are not included in the cost of goods sold. However, under absorption costing, fixed manufacturing costs are included in the cost of goods sold and therefore affect operating income differently. Direct materials costs and variable manufacturing costs are treated the same under both costing methods, and selling and administrative costs are typically not included in the manufacturing process and therefore not impacted by the choice of costing method.

The Difference Between Operating Incomes Under Variable Costing and Absorption