When the number of units produced is less than the number of units sold, how does operating income under variable costing differ from operating income under absorption costing?
A) It is lower than operating income under absorption costing.
B) It is the same as operating income under absorption costing.
C) It is higher than operating income under absorption costing.
D) It depends upon the amount of decline.

Question

Quizplus · Accepted Answer

Under variable costing, only variable costs are included in product costs, while fixed manufacturing overhead is expensed in the period incurred. When units produced are less than units sold, some of the fixed overhead costs are released from inventory under absorption costing, leading to higher operating income under variable costing.

When the Number of Units Produced Is Less Than the Number