When units manufactured exceed units sold:
A) variable costing income equals absorption costing income
B) variable costing income is less than absorption costing income
C) variable costing income is greater than absorption costing income
D) variable costing income is greater by the number of units produced multiplied by the variable cost ratio.

Question

Quizplus · Accepted Answer

When units manufactured exceed units sold, there will be an ending inventory balance which will be higher under absorption costing method as compared to variable costing method. This is because the fixed manufacturing overhead is included in the inventory value under absorption costing but expensed immediately under variable costing. Therefore, absorption costing income will be higher than variable costing income.

When Units Manufactured Exceed Units Sold