Weber Company computes net operating income under both the absorption costing approach and the variable costing approach. For a given year the absorption costing net operating income was greater than the variable costing net operating income. This fact suggests that:
A) variable manufacturing costs were less than fixed manufacturing costs.
B) more units were produced during the year than were sold.
C) more units were sold during the year than were produced.
D) common costs were greater than variable costs for the year.

Question

Quizplus · Accepted Answer

Under absorption costing, fixed manufacturing costs are included in inventory costs. If more units are produced than sold, some fixed costs are deferred in inventory, leading to higher net income compared to variable costing, where all fixed costs are expensed in the period incurred.

Weber Company Computes Net Operating Income Under Both the Absorption