If a company produces more units than it sells in a period, net operating income under variable costing will:
A) Be the same as it would be under absorption costing
B) Be less than it would be under absorption costing
C) Be equal to the net operating income using absorption costing plus selling and administrative costs
D) Be equal to the net operating income using absorption costing less fixed manufacturing costs

Question

Quizplus · Accepted Answer

Under variable costing, fixed manufacturing costs are treated as period expenses and are not included in the cost of goods sold. Therefore, if a company produces more units than it sells, some of the fixed manufacturing costs will be expensed in the period rather than being carried forward as inventory costs, resulting in lower net operating income under variable costing compared to absorption costing.

If a Company Produces More Units Than It Sells in a Period