Which of the following is false?
A)When units produced exceed units sold, income under absorption costing is higher than income under variable costing.
B)When units sold exceed units produced, income under absorption costing is higher than income under variable costing.
C)Net income under variable costing is closely tied to changes in sales levels.
D)When units produced equal units sold, income under absorption costing and variable costing will be the same.

Question

Quizplus · Accepted Answer

When units sold exceed units produced, income under absorption costing is lower than income under variable costing. This is because under absorption costing, fixed manufacturing overhead costs are allocated to units produced and carried in inventory until they are sold, whereas under variable costing, fixed manufacturing overhead costs are expensed in the period in which they are incurred. When units sold exceed units produced, there is a smaller inventory pool to absorb fixed overhead costs, resulting in lower income under absorption costing.

Which of the Following Is False