When inventories increase,the direct costing income statement will report lower net income than reported under absorption costing.

Question

Quizplus · Accepted Answer

Under direct costing, only variable manufacturing costs are included in inventory, while fixed manufacturing costs are expensed immediately. Therefore, if inventories increase, a portion of fixed manufacturing costs will be expensed, resulting in lower net income compared to absorption costing which includes all manufacturing costs in inventory.

When Inventories Increase,the Direct Costing Income Statement Will Report Lower