Under absorption costing when production exceeds sales in a year,
A)inventory values and cost of goods sold are higher than under variable costing.
B)inventory values and cost of goods sold are lower than under variable costing.
C)inventory values are lower and cost of goods sold are higher than under variable costing.
D)inventory values are higher and cost of goods sold are lower than under variable costing.

Question

Quizplus · Accepted Answer

Under absorption costing, when production exceeds sales, some of the fixed manufacturing overhead costs are deferred in inventory. This results in higher inventory values and lower cost of goods sold compared to variable costing, where all fixed manufacturing overhead costs are expensed in the period they are incurred.

Under Absorption Costing When Production Exceeds Sales in a Year