Green Enterprises produces a single product. The following data were provided by the company for the most recent period:
-For the period above,one would expect the net operating income under absorption costing to be:
A)higher than the net operating income under variable costing.
B)lower than the net operating income under variable costing.
C)the same as the net operating income under variable costing.
D)The relation between absorption costing net operating income and variable costing net operating income cannot be determined.

Question

Green Enterprises produces a single product. The following data were provided by the company for the most recent period: 
-For the period above,one would expect the net operating income under absorption costing to be:
A)higher than the net operating income under variable costing. 
B)lower than the net operating income under variable costing. 
C)the same as the net operating income under variable costing. 
D)The relation between absorption costing net operating income and variable costing net operating income cannot be determined.

Quizplus · Accepted Answer

When production exceeds sales,net operating income under absorption costing will always be higher than under variable costing.A portion of fixed manufacturing cost will be deferred in ending inventory rather than being included in the income statement.

Green Enterprises Produces a Single Product