Whitney, Inc., produces a single product. The following data pertain to one month's operations:
-For the month referred to above,net operating income under variable costing will be:
A)higher than net operating income under absorption costing.
B)lower than net operating income under absorption costing.
C)the same as net operating income under absorption costing.
D)The relation between variable costing and absorption costing net operating income cannot be determined.

Question

Whitney, Inc., produces a single product. The following data pertain to one month's operations: 
-For the month referred to above,net operating income under variable costing will be:
A)higher than net operating income under absorption costing. 
B)lower than net operating income under absorption costing. 
C)the same as net operating income under absorption costing. 
D)The relation between variable costing and absorption costing net operating income cannot be determined.

Quizplus · Accepted Answer

Since production exceeds sales,the net operating income for variable costing will be lower than for absorption costing.This occurs because under absorption costing,some of the fixed manufacturing overhead cost is deferred in ending inventories.