Net income under absorption costing is higher than net income under variable costing
A) when units produced exceed units sold.
B) when units produced equal units sold.
C) when units produced are less than units sold.
D) regardless of the relationship between units produced and units sold.

Question

Quizplus · Accepted Answer

Under absorption costing, fixed manufacturing overhead costs are included in the cost of each unit produced and are expensed only when the units are sold. When units produced exceed units sold, the fixed overhead costs are spread over a larger number of units, resulting in a lower per-unit cost and a higher net income compared to variable costing.

Net Income Under Absorption Costing Is Higher Than Net Income