When production exceeds sales,
A) ending inventory under variable costing will exceed ending inventory under absorption costing.
B) ending inventory under absorption costing will exceed ending inventory under variable costing.
C) ending inventory under absorption costing will be equal to ending inventory under variable costing.
D) ending inventory under absorption costing may exceed, be equal to, or be less than ending inventory under variable costing.

Question

Quizplus · Accepted Answer

When production exceeds sales, there will be more units in the inventory. Under absorption costing, all manufacturing costs are included in the cost of inventory, including fixed manufacturing overhead. Therefore, ending inventory under absorption costing will be higher than under variable costing, which only includes variable manufacturing costs in the cost of inventory.

When Production Exceeds Sales