When production is greater than sales
A)net income under absorption costing will be greater than or less than net income under variable costing depending on the selling and administration costs.
B)net income under absorption costing will be equal to net income under variable costing.
C)net income under absorption costing will be less than net income under variable costing.
D)net income under absorption costing will be greater than net income under variable costing.

Question

Quizplus · Accepted Answer

When production is greater than sales, under absorption costing, some of the fixed manufacturing overhead costs are included in the ending inventory and not expensed in the current period. This results in higher net income compared to variable costing, where all fixed manufacturing overhead costs are expensed in the period they are incurred, regardless of the level of production or sales.

When Production Is Greater Than Sales