Net income reported under absorption costing will exceed net income reported under variable costing for a given period if
A) production equals sales for that period.
B) production exceeds sales for that period.
C) sales exceed production for that period.
D) variable overhead exceeds fixed overhead for that period.

Question

Quizplus · Accepted Answer

Absorption costing allocates fixed overhead to units of production, regardless of whether they are sold or not. Therefore, if production exceeds sales, more fixed overhead will be allocated to the units produced and held in inventory under absorption costing, resulting in a higher net income compared to variable costing, which only assigns variable costs to units sold.

Net Income Reported Under Absorption Costing Will Exceed Net Income