If the number of units produced exceeds the number of units sold, the full-absorption operating profit will be lower than variable costing operating profit.

Question

Quizplus · Accepted Answer

In full absorption costing, fixed manufacturing costs are spread over all units produced, so if production exceeds sales, some fixed costs are deferred in inventory, leading to higher operating profit compared to variable costing, where all fixed costs are expensed in the period incurred.

If the Number of Units Produced Exceeds the Number of Units